September 2011 Ethanol Producer Magazine

INSIDE: STOVER HARVEST IN TIME AND MONEY september 2011

The Quest for

Maximum Yield

From enzymes to yeast and particle size, technologies aim at optimization Page 42

ALSO Seeking the Blending Sweet Spot Page 54

Head of DOE Loan Program Defends Performance Page 60

www.ethanolproducer.com

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contents

features

september issue 2011 VOL. 19 ISSUE 9

42

DEPARTMENTS 6

Editor’s Note

Seeking Gains

By Susanne Retka Schill

10 The Way I See It

Making Our Voices Heard

By Mike Bryan

11 Events Calendar

YIELD

The Quest for Maximum Yield

12 View From the Hill

Technology providers strive to help the industry optimize ethanol yields

By Holly Jessen

Washington’s New Era By bob dinneen

60

54

Upcoming Conferences & Trade Shows

14 Drive

Freedom: More

Than Just a Word By tom buis

16 Grassroots Voice

Opportunity Missed,

Opportunities Ahead By brian jennings

18 Europe Calling BLENDS

Seeking the Blending Sweet Spot The path towards expanded ethanol usage requires evaluating the best blend

By Kris Bevill

Q&A

Getting Better

A conversation with the U.S. DOE’s Jonathan Silver, head of loan programs

By Kris Bevill

the EU Market

By Rob Vierhout

20 Business Matters

Contributions 70

66

Securing Access to

Motion to Buy, Sell,

Merge or Explore Sets Process in Motion By judd vande voort

22 Business Briefs 26 Commodities Report 30 Distilled 74 Marketplace 78 Ad Index

FEEDSTOCK

WATER

Putting numbers behind the costs and time committments

By Cole Gustafson, Thein Maung and David Ripplinger

Re-evaluating water consumption with expanded boundaries and coproducts included

By Gouri Shankar Mishra and Sonia Yeh

Harvesting Both Corn Grain and Stover in Adverse Weather

Water Intensity of Corn-Based Ethanol Needs to Include DDGS Credit

INSIDE: COST AND TIME INVOLVED IN STOVER HARVEST SEPtEmBEr 2011

On The Cover

The Quest for

Maximum Yield

From enzymes to yeast and particle size, technologies aim at optimization Page 42

ALSO

Ethanol Producer Magazine: (USPS No. 023-974) September 2011, Vol. 17, Issue 9. 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 | september 2011

Seeking the Blending Sweet Spot Page 54

Head of DOE Loan Program Defends Performance Page 60

www.ethanolproducer.com

Novozymes works towards continual improvement in its industrial enzymes.

PHOTO: NOVOZYMES

editor’s note

The ethanol industry is multifaceted, and this month we delve into two of those dimensions. Associ-

ate Editor Holly Jessen extends our coverage of the 2011 International Fuel Ethanol Workshop & Expo by reporting in greater depth on several technologies that aim to improve ethanol yield. A 1 percent gain seems tiny, unless you’re talking yield at a modern ethanol plant where such a gain can mean millions of dollars. I once talked to a gentleman whose experience was primarily in the wet milling industry dominated by giant agribusiness where the improvement goals were fractions of a percent. Associate Kris Bevill shares what she learned from industry experts seeking to find the optimal engine performance utilizing the optimal ethanol blend. The real gains in the ethanol market will come when we can do better than E15 even. Bevill also had an opportunity to visit with the head of the U.S. DOE’s loan program and ask questions about the fate of its loan guarantees.

Regular readers of EPM’s print magazine may not always pay attention to the online version posted shortly after the edition is delivered to the printer. But, since the first of the year, and the redesign of www.ethanolproducer.com, we’ve been allowing comments on all stories. Lately, the ethanol haters have found us. We’re sometimes puzzled by commenters who don’t seem to understand that this is an industry publication and our targeted readers are ethanol producers. A story like Bevill’s discussing work being done on expanding ethanol blend use is likely to attract negative comments. We truly appreciate our readers who take the time to respond to those sorts of comments, correcting facts and offering a different perspective.

seeking gains Susanne Retka Schill, Editor sretkaschill@bbiinternational.com

For industry news.

Follow Us: twitter.com/EthanolMagazine

letters To the Editor: We are involved in renewable energy and as a result travel extensively in the U.S. I find it difficult, however, to locate an E85 pump. Ethanol producers are in the transportation business and as such, need to review the history of the oil companies during the early years of the past century.

Texaco, Standard Oil, etc, developed their own branded service stations in order to sell their finished petroleum products. We will never achieve growth until we have more E85 pumps to promote demand.

I am surprised that more producers do not acquire pumps with their own money, rather than wait for the U.S. government to provide the funds, and establish a marketing arrangement with a local or regional group

of stations. The last debt crisis should illustrate that the days of Washington providing funds is slowing down and may stop for ethanol. So, ethanol producers need to acquire pumps, install them in high traffic areas and have exclusive right to sell their ethanol. This provides a steady source of E85 demand for the producer.

The articles in your magazine concentrate on the production of ethanol. I think we need to look at ethanol marketing, which is where the demand will come in the months and years in the future.

6 | Ethanol Producer Magazine | september 2011

Donald Barry CEO, Danbury Energy Systems LLC San Antonio, Texas

Correction A chart shown with the story, “Who’s on the List?,” on page 36 of the August issue incorrectly stated the U.S. EPA’s anticipated 2012 available cellulosic ethanol volume from Fiberight of Blairstown LLC. The facility has the potential to produce 3 million ethanol-equivalent gallons of cellulosic ethanol next year.

EDITORIAL EDITOR Susanne Retka Schill sretkaschill@bbiinternational.com ASSOCIATE EDITORS Holly Jessen hjessen@bbiinternational.com Kris Bevill kbevill@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

ART ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Erica Marquis emarquis@bbiinternational.com

PUBLISHING CHAIRMAN Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com VICE PRESIDENT Tom Bryan tbryan@bbiinternational.com

SALES VICE PRESIDENT, SALES & MARKETING Matthew Spoor mspoor@bbiinternational.com EXECUTIVE ACCOUNT MANAGER Howard Brockhouse hbrockhouse@bbiinternational.com SENIOR ACCOUNT MANAGER Jeremy Hanson jhanson@bbiinternational.com ACCOUNT MANAGERS Chip Shereck cshereck@bbiinternational.com Marty Steen msteen@bbiinternational.com Bob Brown bbrown@bbiinternational.com Andrea Anderson aanderson@bbiinternational.com Dave Austin daustin@bbiinternational.com Nick Jensen njensen@bbiinternational.com CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com ADVERTISING COORDINATOR Marla DeFoe mdefoe@bbiinternational.com Senior Marketing Manager John Nelson jnelson@bbiinternational.com

EDITORIAL BOARD Mike Jerke Jeremy Wilhelm Commonwealth Agri-Energy LLC Mick Henderson Pinal Energy LLC 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 service@bbiinternational.com. 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 service@bbiinternational.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 service@bbiinternational.com. 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 sretkashill@bbiinternational.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 Š 2011 by BBI International

september 2011 | Ethanol Producer Magazine | 7

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Not with gasoline or diesel, but with The New Ethanol.

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the way i see it

Making Our Voices Heard

By Mike Bryan

At what point do we move from frustrated to angry? The treatment being heaped on ethanol in Washington these days is downright disgraceful. To hide the removal of ethanol subsidies behind a thinly disguised veil of budget reductions, when oil subsidies remain untouched, is clearly political and has nothing to do with what’s best for America.

More than 200 ethanol plants pump billions of dollars into local economies and 400,000-plus direct and indirect jobs.

Ethanol now constitutes 10 percent of America’s automotive fuel, equivalent to what would be imported from Saudi Arabia.

So where is this huge negative budget impact? There isn’t one. It’s simply politics at its worst.

Make no mistake, while cellulosic ethanol is being touted by those opposed to grain-based ethanol as the salvation of the industry, it will not be. As long as oil can continue to make significant political contributions, ethanol, no matter its feedstock, will always be the subject of unreasonable opposition. In short, it will be the same product, with a whole new set of objections.

10 | Ethanol Producer Magazine | september 2011

The ethanol industry needs stand now on grain-based ethanol. Unwavering, united and unshakeable in our conviction, the contribution American agriculture is making to our economy and America’s energy security cannot be challenged.

On the political front, we have seen in the last couple of months what acquiescence achieves, it achieves only defeat. If we join the chorus of those singing the praises of cellulosic ethanol, to the detriment of grainbased ethanol, we will be contributors to

you have made the contact, forward the message you have sent to Ethanol Producer Magazine and we’ll be sure to post them on our website. We hope there are thousands.

Washington seems to be in a state of total disarray. One way to help get it back on track is to let your voice be heard. We need to tell them what we want and expect.

We were the ones who put them there in the first place and we have a right and an obligation to have our voices heard.

the beginning of the end to ethanol.

Getting frustrated and letting someone else do the work in Washington is no longer an option. It’s time to for us to get downright angry and it’s time for each of us to take personal action. There has never been a more important time to contact your Congressmen. It’s time for each of us to say, “Enough! As our representative in Washington, we expect you to defend this great American industry. We expect you, as our representative, to support American agriculture and the contribution to the environment and freedom that ethanol achieves”. Whether it’s a phone call, an email or a personal visit, make it a priority.

Making the contact is a bit of a pain and it’s easier to let the Washington lobbyist do the work, but there is no stronger message to Congress then when it comes from a constituent. When

It’s no longer a time for bystanders, it’s time for action!

That’s the way I see it!

Author: Mike Bryan Chairman, BBI International mbryan@bbiinternational.com

events calendar

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.

(866)746-8385 www.biorefiningconference.com

Northeast Biomass Conference & Trade Show October 11-13, 2011

Northeast Conference Coincides With a Surge in Biomass Utilization

10/11

The timing of the Northeast Biomass Conference & Trade Show—Oct. 11-13 at the Westin Place Hotel in Pittsburgh—is perfect as the biomass industry is poised to expand not just in the Northeast U.S. but worldwide.

In the U.S., biomass pellet production has been increasing as companies scramble to supply fuel for the rapidly growing biomass power industry in Europe. The nuclear disaster in Japan has caused some countries, such as Germany, to phase out nuclear power.

Germany plans to shut down its nuclear plants by 2022 and replace them with renewable power.

The U.K.’s Renewable Heat Incentive has raised the visibility of biomass thermal and could be a model for other countries to follow.

China and India are increasing their use of biomass power and thermal by leaps and bounds.

In the Northeast U.S. specifically, Massachusetts’ first biogas power plant began operating in May at the Jordan Dairy farm in Rutland. The plant was designed and built by a consortium of five local dairy farms called AGreen Energy LLC and quaser energy group.

New England Organics, a division of Casella Waste Systems, will manage the facility.

In New York, Synergy Dairy LLC is partnering with Florida-based CH4 Biogas LLC to develop an anaerobic digester at a 2,000-head dairy farm in Covington called Synergy Biogas. The plant, which is currently under construction, will produce 2 megawatts of power for the grid.

New York is also home to the largest wood pellet plant in the Northeast. In June, New England Wood Pellet held a ribbon-cutting ceremony at its 85,000-ton-per-year pellet facility in Deposit, N.Y. In Maryland, Gov. Martin O’Malley says he supports a bill that would allow municipal solid waste to be classified as a Tier 1 renewable, making its use eligible to receive renewable energy credits under the state’s renewable portfolio standard.

The Northeast Biomass Conference & Trade Show program will feature more than 60 speakers and include technical presentations on topics ranging from anaerobic digestion and gasification to combined heat and power and large-scale biomass combustion, within the structured framework of general session panels and four customized tracks: electricity generation; industrial process heat and power; biorefining; and project development and finance.

The event is designed to help biomass industry stakeholders identify and evaluate solutions that fit their operations. It’s time to improve operational efficiencies and tap into the revenue-generating potential of sustainable biomass resources in the Northeastern U.S. To attend, exhibit, speak or sponsor, visit www.biomassconference.com/northeast.

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.

(866)746-8385 www.biomassconference.com/northeast

Algae Biomass Summit October 24-27, 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. Register by Sept. 12 and save $200.

(866)746-8385 www.algaebiomasssummit.org

Southeast Biomass Conference & Trade Show November 1-3, 2011

Hyatt Regency Atlanta | Atlanta, Georgia With an exclusive focus on biomass utilization in the Southeast—from the Virginias to the Gulf Coast—the Southeast Biomass Conference & Trade Show— Oct. 11-13 at the Westin Place Hotel in Pittsburgh— will connect the area’s current and future producers of biomass-derived electricity, industrial heat and power, and advanced biofuels, with waste generators, aggregators, growers, municipal leaders, utility executives, technology providers, equipment manufacturers, investors and policy makers. Register by Sept. 20 and save $200.

(866)746-8385 www.biomassconference.com/southeast september 2011 | Ethanol Producer Magazine | 11

view from the hill

Washington’s New Era

By Bob Dinneen

The recent partisan battle over raising the amount of money the federal government is allowed to borrow to pay its bills is merely a symptom of a larger metamorphosis on Capitol Hill.

As we have seen with every spending measure put before either chamber of Congress, the age of Washington austerity is here.

The implications of this new-found fiscal discipline, or at least façade of fiscal discipline, will present challenges for every industry in the nation, including existing and emerging renewable fuel technologies.

We have already seen the appetite to do away with federal investment in ethanol peak, despite thoughtful ideas and policies put forward by ethanol’s champions on the Hill and the industry itself. But the mischief that lawmakers are hiding behind a veil of budget concern extends far beyond the tax credit for ethanol blending.

Using the appropriations process, lawmakers from the oil patch and elsewhere are seeking to use the federal government purse strings to reverse, overturn, or stall critical advances in America’s ethanol industry. Take, for example, the U.S. EPA and Department of the Interior annual appropriations bill.

No fewer than four amendments to that

12 | Ethanol Producer Magazine | september 2011

bill sought to prevent funding for EPArelated activities that would fully implement the approval of E15 ethanol blends and enforce the 2012 renewable fuel standard requirements. This bill has already drawn a veto threat from the White House and is a nonstarter, but the efforts to systematically dismantle American renewable fuel

common foil in the fossil fuel industries that have monopolized our economy and energy future for too long. Second, we must continue to point out the hypocrisy of continued support for oil and coal while investment in promising new renewable technologies is slashed or abandoned.

Third, we must look for opportunities to

production are just beginning.

As more appropriations bills are considered, such as the one funding the USDA, some lawmakers will again seek to legislate as they appropriate, having failed to thwart American ethanol production through normal legislative and regulatory channels.

The Achilles heel for these lawmakers is often the hypocritical nature of their “budget focus.” While they routinely bemoan federal investment in ethanol, however paltry the amount, they will refuse to address subsidies elsewhere in the energy sector. As we saw last quarter, America’s major oil companies are making tens of billions of dollars in profit while American taxpayers continue to provide them with support. One analysis from DTN/Progressive Farmer estimates that the petroleum industry is eligible for some $17 billion in subsidies each year.

In order to fight back these efforts to halt America’s march toward energy independence, all of America’s renewable energy community must do three things.

First, we must recognize that the enemy is not each other. Rather, we share a

work together and think outside the box. I believe that the ethanol tax policy reforms put forward by Sens. Amy Klobuchar, John Thune and Chuck Grassley, among others, are an example of the kind of new energy policy paradigm that Washington and the nation need to adopt.

This column is not meant to unduly alarm. To the contrary, it is meant to excite the renewable fuels community to action and spur ongoing efforts to find new solutions and areas of commonality.

This new era in Washington may very well usher in a new era for American ethanol and renewable energy production.

It will only be as promising as we make it.

Author: Bob Dinneen President and CEO of the Renewable Fuels Association (202) 289-3835

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DRIVE

Freedom: More Than Just a Word

By Tom Buis

At this year’s Fuel Ethanol Workshop & Expo in Indianapolis, 100 attendees viewed a special screening of “Freedom,” a new documentary that takes a hard—and refreshing—look at America’s perilous and unsustainable addiction to foreign oil. The film focuses on the one solution we have to America’s foreign oil addiction: homegrown, renewable ethanol.

I predict that “Freedom” will truly change opinions in this country. The film goes beyond getting people mad.

It gets people motivated. And it offers serious thought for getting Americans off the couch and involved in the debate over the future of America’s national, economic and energy security. “Freedom” is the first film I have seen that includes the arguments both for and against ethanol. This movie goes for the truth and uses facts to blow away the myths about food versus fuel, the so-called “indirect land use change” scheme, and ethanol’s compatibility as a fuel with today’s engines.

14 | Ethanol Producer Magazine | september 2011

I’ve had the opportunity to meet with the film’s producers, husband-andwife team Josh and Rebecca Tickell.

The Tickells won major awards for their previous documentary, “Fuel,” including recognition by the Sundance Film Festival. I asked the Tickells why they wanted to put this film together. They told me, in no uncertain terms, that they saw the country had learned nothing from the Deepwater Horizon oil spill, and they decided to take a hard look at the pros and cons of American ethanol.

The movie includes commentary from a wide range of advocates, such as former CIA Director Jim Woolsey, Growth Energy’s own Co-Chairman (Ret.) Gen. Wesley Clark, former House Speaker Newt Gingrich and Agriculture Secretary Tom Vilsack. These are all serious thinkers and leaders who know full well the danger of our current situation—and support ethanol’s role in fixing the crisis. The movie also includes influential celebrities such as singersongwriter Jason Mraz, actor Ed Begley Jr., and other well-known activists who can open doors for ethanol to audiences on the West Coast and the East Coast.

This movie will help introduce ethanol to people in Los Angeles, New York City and elsewhere who have no idea what

ethanol is, where it comes from, or what it can do to secure our nation’s energy future This fall, the Tickells are putting an E85-powered bus on the road for a three-month tour of America, promoting “Freedom,” and ethanol supporters across the country will be coordinating their own screenings of the movie. If you want to find out more, or find out how you can host or attend a screening, there is plenty of information online at www.thefreedomfilm.com. I hope you take a moment, look at the online trailer, and discover for yourself what a unique opportunity we have with this movie, right now.

Author: Tom Buis CEO, Growth Energy (202)545-4000 tbuis@growthenergy.org

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Opportunity Missed, Opportunities Ahead

By Brian Jennings Last month, Congress missed a golden opportunity to enact a plan to save taxpayers more than $1 billion by reforming the ethanol blenders credit to support the commercialization of cellulosic ethanol and provide modest, yet important incentives for small ethanol producers and blender pumps. The Ethanol

Reform and Deficit Reduction Act S1185, introduced by Sens. John Thune, R-S.D. and Amy Klobuchar, D-Minn., would have ended VEETC on July 31, instead of the current expiration date of Dec. 31. Twothirds of the savings—$1.3 billion—would have been directed toward federal deficit reduction, and the remaining $688 million would have gone to ethanol incentives.

The agreement was struck with Sen. Diane Feinstein, D-Calif., an ardent opponent of corn ethanol.

But when the final debt ceiling and deficit reduction deal was negotiated in Congress on Aug. 1, the ethanol compromise, unfortunately, was left on the cutting room floor.

The American Coalition for Ethanol has worked closely with bipartisan leaders on reform of the Volumetric Ethanol Excise Tax Credit. Despite our good-faith effort, certain House members demanded that provisions which return

16 | Ethanol Producer Magazine | september 2011

revenue to the federal Treasury, such as reforming VEETC, not be included in the final debt deal. By disregarding reform of the ethanol tax credit as part of that deal, consumers and the American ethanol industry have been shortchanged.

But we are not giving up. While the calendar may not be working in our favor, there’s still substantial deficit savings on the table not to mention important incentives for ethanol in this plan. ACE took advantage of the annual congressional August recess to encourage our grassroots members to contact their senators and representatives and make the case for the reform plan. In September, ACE will work with Sens.

Thune and Klobuchar to determine how, and if, the reform effort can be resurrected in Congress.

If adopted, the ethanol agreement would expand an existing tax credit for fuel stations to install blender pumps and would extend the credit through 2014. The credit would also be modified to allow for blends between E15 and E85, and the entire cost of the blender pump would qualify for the credit, not just the E85 portion of the equipment. The agreement would also extend the Small Ethanol Producer Tax Credit through 2012, albeit at a lower rate. Finally, because commercializing next-generation ethanol is a national imperative, the plan would extend the $1.01 per gallon production tax credit for cellulosic ethanol and allow for accelerated depreciation of cellulosic facility equipment. Because Sen. Feinstein demanded that two-thirds of the funds go to deficit reduction, some of our priorities

were jettisoned from this brokered compromise, making it far from perfect. It was the art of the possible, however, given the temperament of Congress.

During the month of August, ACE also encouraged our grassroots supporters to invite members of Congress to their ethanol plants and discuss with them the job creation and economic benefits of ethanol because the top priority when Congress returns to work this month will be a Clean Energy Jobs Bill. This legislation is a natural vehicle with which to advance ethanol industry priorities.

VEETC will either undergo reform or expiration in 2011, but our industry still has a renewable fuels standard to protect and consumer fuel choice policies to advance.

ACE has long held the position that tackling these priorities through effective lobbying means more than simply getting access to a key member of Congress. In fact, ACE’s grassroots identity enables us to elevate our lobbying and advocacy to build coalitions and identify voices outside the Beltway to validate the arguments we make to lawmakers every day. The message matters, but the messenger is important as well. That’s why our annual grassroots fly-in has been so effective, and that’s the strategy we’ll improve upon as we tackle the unfinished priorities of the industry.

Author: Brian Jennings, Executive Vice President, American Coalition for Ethanol (605)334-3381 bjennings@ethanol.org

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Europe Calling

Securing Access to the EU Market

By Robert Vierhout

In July, I wrote about the voluntary certification schemes for sustainable biofuels in the EU and the long time it has taken to get these schemes officially approved and published. July

19 was the historic date. European Commissioner for Energy Gunther Oettinger proudly presented the first seven voluntary schemes approved not only by the commission, but by member states and Parliament as well. The seven included schemes from the Roundtable of Sustainable Biofuels, the Round Table on Responsible Soy, Spain’s Abengoa and the UK’s Greenergy, among others.

The delay was due to a number of reasons, the most important being, without any doubt, that all stakeholders and regulators were entering uncharted waters. There was no experience, no quick cut-and-paste of similar implementation schemes. These schemes had to be built step by step. Secondly, the commission services had too many implementation measures to attend to while being understaffed, and thus brought in consultants to do the assessments.

The downside, however, is that if your funds dry up, consultants stop working.

That happened late last year. A third likely reason for the delay was that the commission wanted to be absolutely certain that whatever schemes were approved, they would be watertight.

Individual companies, stakeholder

18 | Ethanol Producer Magazine | september 2011

groups, consortium of companies and a consultancy developed schemes. It was a gruelling exercise that required lots of time, money and specialized skills. There are various reasons for tackling such an exercise, ranging from seeing a pure business opportunity, creating added value for the product, securing civil society support, and, for some, the most important reason, guaranteeing market access throughout the EU. Germany marched ahead of the troops. The first scheme that started to operate was the German International Sustainability and Carbon Certification.

It received strong government support, including financial, and once it was used, resulted in a premium for ISCC-certified products. The estimated number of scheme users is around 650. The other German scheme, REDCert, is even more popular and being used by 900 companies, although not yet EU approved.

The price to pay for obtaining EU approval may be high but the alternative of waiting for national member state schemes is even more costly. The majority of the EU countries still have no scheme in place.

But above all, using a national scheme doesn’t mean one can use that certification beyond the borders of that country, unless the scheme is explicitly recognized by another country. Indeed, that is not what one would expect from a united Europe where mutual recognition and free movement are supposed to apply to all goods, services and capital. The EU is never easy. EU recognition of a voluntary scheme means no trade obstacle within the EU. That is a price worth paying, if your product needs to find markets outside the country of production. And this logic applies to most, if not all, non-Germanybased producers.

There is one final point—a flawless working of these schemes is critically important. Environmental and other nongovernmental organizations (NGOs) will do everything in their power to demonstrate that the schemes do not deliver what they say they should. Even if they will need to plough through several hundred pages of documents to find a failure, they will do it. And for sure, they will find weak spots allowing them to claim that some schemes, or parts of schemes, are equal to green washing.

Time will tell, but it seems clear that NGOs will see certification schemes as another opportunity to criticize biofuel policy.

To my mind, the two weakest links in the chain are the independent auditor and the exclusion of additional environmental and social criteria, in some cases. Even though the latter is not required under the EC Renewable Energy Directive, it will be used by NGOs to say that some schemes are questionable. Independent auditing is obviously crucial. The first report that surfaces questioning the quality or independence of audits carried out will put a bomb under the schemes.

I am also concerned about the number of schemes with another 18 awaiting approval. I am not convinced that so many schemes will be needed, or will work well. The more voluntary schemes, along with another 20-plus national schemes potentially, the greater the risk for mistakes and vulnerability to NGO criticism.

For those that have their scheme approved, however, it is a great way to have market access to all the 27 member states of the EU, without question.

Author: Robert Vierhout Secretary-general, ePURE Vierhout@epure.org

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business matters

Motion to Buy, Sell, Merge or Explore Sets Process in Motion

By Judd Vande Voort

The decision to voluntarily buy or sell an ethanol company or its facilities often can be a long and drawn-out affair.

Occasionally, the decision to sell is involuntary and outside the control of the board. Increasingly, however, the decision to buy or sell is entirely within the control of the board of directors.

The decision to explore an acquisition or sale strategy often originates from discussions board members have with each other or with other equity holders who think they see an opportunity to buy or sell an ethanol company. This debate can sometimes be the most time-consuming part, occurring before any motion to act at the board level is ever made. The buyers and sellers in the group will be balanced by the folks in the middle who are unable to draw any conclusions from their analysis of prospective events and will often favor the status quo. Each of these perspectives will likely be represented at the board meeting when the chairman is asked to entertain a motion to explore an acquisition, sale or merger strategy. The motion may fail, and that is fine. But, what if it passes?

If the motion passes, the company will embark on a quest for the right deal, be it an acquisition, sale or merger. It is at this point that the company will assemble a team to begin negotiating the first of several preliminary agreements to be executed. Once legal counsel has been identified and retained, often the next

20 | Ethanol Producer Magazine | september 2011

critical task is to identify a firm to provide the company with financial advisory or investment banking services. After several proposals are circulated, the first agreement will usually be an engagement agreement with the advisory firm.

Defining the scope of advisory services is critical. Is the company simply looking for valuation and market analysis at this point, or has the board decided to engage a firm to actively solicit offers to buy or sell, facilitate negotiations and follow the preferred offer with an opinion contemplating the financial fairness of the consideration being received or paid in a transaction? These items, as well as the exclusive or nonexclusive nature, change the scope of the engagement and, therefore, affect the negotiated fees for the advisory firm’s services.

After the selected advisory firm has rendered its strategic and financial advice, the pursuit of the right partner, target or buyer usually starts with at least one, and oftentimes several, confidentiality agreements (CA). In the merger and acquisition context the CA is of primary concern to the seller, which is likely the disclosing party. The disclosing party needs a broad definition of “confidential information” and considerable limitations on the access to and use of that information. The available remedies and liability for breaches of the CA is also of primary importance to both parties and often become points of negotiation.

At the time the company and its counsel are thinking through confidentially agreements, the buyer will start

expressing concerns about exclusive dealing or “no shop” provisions to be negotiated and agreed upon. These provisions can show up at various times in the negotiations, but the buyer will typically ask for exclusivity prior to executing a letter of intent. The no shop provisions prevent the seller from negotiating with a second buyer while the first buyer is conducting its due diligence and are often used to leverage the other material terms contained in a letter of intent. The decision to engage in exclusive negotiations is a significant and often necessary step in the process that is usually considered along with a break-up fee.

The letter of intent can follow a term sheet or be signed in lieu of a term sheet.

The letter of intent should clearly outline the material terms of the transaction and is generally nonbinding with the exception of certain limited provisions. The process of negotiating and drafting a letter of intent often helps to expose the points of contention early in the discussions.

With the guidance of experienced counsel and a competent financial advisor, the decision to voluntarily buy, sell, merge or to simply explore a company’s options does not have to be unnecessarily long and drawn out.

Author: Judd Vande Voort Attorney, renewable fuels and corporate law at BrownWinick (515) 242-2440 vandevoort@brownwinick.com

business briefs People, Partnerships & Deals

Carl Swisher is the new sales manager for material handling products for 4B Components Ltd., an Illinois-based manufacturer of material handling and electronMaterial Handler ic components for Carl Swisher has a bucket elevators and strong knowledge of the elevator bucket conveyors.

Swisher business, which has more than 20 he’ll bring to his new position with 4B years of experience Components. in industrial sales and international business and most recently was sales manager for Tapco Inc. Rick Serie has joined the American Coalition for Ethanol staff, based out of the organization’s Sioux Falls, S.D., office.

“The addition of Rick as director of market Ethanol Veteran development gives Rick Serie brings 15 ACE unmatched realyears of experience to world expertise in getACE, which included the startup and ting ethanol from the management of two plant to the pump,” ethanol plants. said ACE Senior Vice President Ron Lamberty. “Plants are becoming impatient with ‘kinks’ in the supply chain, and Rick’s experience as a supplier of E85 and midlevel blends at the ethanol plant level will be a great resource for producers considering their options.” Most recently, Serie was the CEO and general manager for Great Plains Ethanol LLC and Poet Biorefining in Chancellor, S.D. He served as a board member and chairman of the Renewable Fuels Association membership committee and also served in leadership positions of the South Dakota Ethanol Producers Association.

Syngenta AG announced plans to construct a state-of-the-art biotechnology re-

search facility adjacent to its existing research campus in Research Triangle Park, N.C. The $71 million investment will utilize advanced technologies to accelerate the company’s efforts to develop agronomic traits to enable crops to better withstand complex environmental challenges. Work will focus on traits to help crops better tolerate climate variability and combat plant stresses such as drought. The new facility will build on previous work, including the release of Enogen, an enzyme-containing corn variety designed for the ethanol industry.

Lechler Inc. added a miniwhirling tank cleaning nozzle to its line of products for cleaning tanks and vessels. The miniwhirling nozzles are designed to clean smaller vessels up to 3 feet in diameter such as kegs, drums, barrels and totes. Models include a PVDF miniwhirly, a stainless steel unit that fits into 1-inch wide openings, a stainless steel slip-on nozzle and a heavy-duty model. All models have rotating heads.

Pursuit Dynamics PLC has signed agreements with Advanced BioEnergy LLC to install its ethanol reactor system at Advanced BioEnergy’s three plants in South Dakota and Nebraska, which have a combined capacity of 195 MMgy. It also has signed with Front Range Energy LLC to install its system at the 50 MMgy plant in Windsor, Colo. The company provided updates on other installations, saying that Pacific Ethanol Inc.’s Boardman, Ore., plant system is in full commercial operation and Marquis Energy LLC’s Hennepin, Ill., plant and Mid America Bio Energy & Commodities LLC installations came online this summer. Red Trail Energy LLC’s system was expected to begin commercial operation in August. In all,

22 | Ethanol Producer Magazine | september 2011

the company said the total number of plants installed or contracted to be installed totals 13, with a combined capacity of 914 MMgy.

Wisconsin-based Hydro-Thermal Corp., a family-owned manufacturer of direct steam injection heaters, received the Governor’s Export Achievement award at the Wisconsin International Trade Conference. It has been a year of recognition for the company. Earlier, it was recognized as one of the state’s top manufacturers by the Wisconsin Manufacturers & Commerce, the accounting firm Baker and Tilly and the law firm Michael Best & Friedrich LLP as the manufacturer of the year in the small business category.

Texas-based TechCorr USA LLC has opened an office in Rapid City, S.D., to serve the region. As an inspection and testing company, TechCorr offers a wide range of corrosion and mechanical integrity engineering assessments for pipes, tanks and refractory linings. It offers both external and internal corrosion assessments, risk analysis, as well as process and flow modeling for identification of critical areas and bottlenecks.

U.S. Water Ethanol Process Technologies, a subsidiary of U.S. Water Services Inc. has developed an additive, trademarked COR, that increases the removal of corn oil from mechanical separation systems. Using a consistent field test procedure, the company has shown COR increases corn oil extraction rates 25 to 100 percent. The additive also re-

BUSINESS BRIEFS Sponsored by

sults in longer operation between cleaning cycles as well as softer deposits that are easier to remove. At one ethanol facility, corn extraction increased from 0.22 pounds of corn oil per bushel of corn to 0.48 pounds, with a reduction in cloudiness and solids resulting in the plant’s income from the extracted corn oil doubling.

Tennessee’s Genera Energy LLC received the 2011 Innovator award from the South Growth Policies Board, a think tank created by 13 state governors to improve economic opportunities and quality of life in the South. Genera is currently developing a Biomass Innovation Park for the processing and storage of biomass for cellulosic ethanol production, primarily switchgrass being grown on more than 5,000 acres in eastern Tennessee. Genera has partnered with DuPont for the operation of a demonstrationscale cellulosic ethanol biorefinery. Genera Energy is a for-profit company wholly owned by the University of Tennessee Research Foundation.

Superior Industries released the market’s first primary and secondary belt cleaning system that shares a common mounting point, which avoids adding to the conveyor’s structure to add the secondary cleaner. The Exterra SFL dual belt cleaner’s patented tensioning system can be set at installation for the life of the blade. The cleaner is designed to nearly eliminate material carryback that can build up on idlers and pulleys or create unwanted piles under the conveyor. Headquartered in Morris, Minn., Superior Indus-

tries designs and fabricates a full line of conveyor equipment.

BinMaster Level Controls has teamed up with Sprint on its BinView machine-tomachine inventory management solution that allows businesses to monitor inventory in their bins, tanks and silos. The Web-based system provides bin level information on demand, combining BinMaster SmartBob level sensors and the Sprint wireless networks to make the data easily available via the Internet. The BinView interface is cloud-based and works independently of the company network, so it is available virtually anywhere, anytime to any authorized person. A popular BinView feature is to send automated level alerts to a cell phone or via email any time a bin level reaches a predetermined high or low level.

Verenium Corp. has signed a lease agreement for new office and laboratory space in the Torrey Pines area of San Diego.

The move will take place in mid-2012 when Verenium’s current sublease expires. The sublease was negotiated as part of the sale of the cellulosic biofuels business last year to BP Biofuels of North America. An enzyme developer for the global food and fuel markets, Verenium earlier received recognition at the Bright Lights Conference, which focuses on publicly traded companies with “disruptive and market changing [intellectual property].” Verenium received the Clarus award presented by MDB Capital Group as the top company in its industry with the highest technical score and number of patent grants.

The latest addition to the Bete Fog Nozzle Inc. range of spray nozzles is the Xaer air atomizing spray nozzle, pictured,

that provides a full-cone, round-spray pattern suited for high viscosity liquids. Utilizing external mixing, the flow rate is not dependent on air pressure, resulting in easier control. The company also introduced the new HydroWhirl Poseidon, a clean-in-place rotating tank-washing nozzle that combines slow-moving rotation and high-impact spray pattern for more efficient leaning in tanks up to 22 feet in diameter. The bearingless nozzle is selfcleaning and self-lubricating.

Easy Energy Systems Inc. continues to gear up for growth, hiring an executive team to help it meet what it describes as heavy demand for its Modular Energy Production System, a small-scale system designed for noncorn, waste feedstocks such as whey, soda pop and waste paper. The company has new executive offices in Phoenix and expansions underway in Welcome, Minn., and Emmetsburg, Iowa. Aerospace veteran Bill Hinz was recently hired as CEO. Joining the company as president and director of sales and marketing is Robert Molsbergen who most recently was president of a Phoenix-based helicopter company. Brian Fifer has taken the role of chief financial officer and Chuck Jirauch has accepted the position of general counsel and vice president of strategic development. Jirauch has experience as a trial attorney in the areas of intellectual property and technology law litigation, and most recently worked with early-stage technology companies.

FilterSense Inc. is offering equipment applicable to the ethanol industry. Its loop-

september 2011 | Ethanol Producer Magazine | 23

BUSINESS BRIEFS

powered particulate transmitter and filter leak/emissions detector can be used in baghouses, cartridge dust collectors and cyclones to aid in environmental compliance, eliminate cleanup costs and detect emissions before they are visible. The FilterSense liquid mist flow monitors can be used in process analysis and control, environmental protection, contamination detection and equipment protection such as turbines and compressors.

Martin Engineering Co. has added to its family of flow aid products. The Martin Sonic Horn is an acoustic cleaner utilizing low-frequency, high-pressure sound waves that cause particulates to resonate and become fluidized for easier cleanout. The sonic horn reduces downtime, maintenance and operating costs. Acoustic cleaning helps avoid structural fatigue or damage, prevents dry particulate buildup, increases efficiency and is especially effective around pipes and behind obstacles.

Novozymes A/S received the first Focus-Abengoa Foundation Sustainable Business award at a ceremony held at Abengoa’s headquarters in Seville, Spain. Teresa Ribera, the Spanish Secretary of State for Climate Change, presided over the presentation ceremony, accompanied by José B. Terceiro, president of the foundation and vice chairman of Abengoa. Novozymes won the Sustainable Business award in the large company category for its life-cycle studies regarding the carbon footprint of the enzymes sup-

plied to Abengoa. Novozymes has been supplying Abengoa with enzymes since 2001.

The award was created in November 2010 to allow Abengoa to publicly recognize its suppliers that are committed to sustainable development and combating climate change.

a robust and transparent benchmark to market participants not only in Germany, but the Americas and Europe at large, thereby meeting the industry’s need for a global ethanol floating-price reference,” said Ilana Djelal, managing editor of European petrochemicals at Platts.

Industrial Nanotech Inc. introduced Nansulate EPX, a chemical-resistant epoxy insulation coating that offers corrosion prevention, chemical and flame resistance. The two-part epoxy coating was created for insulation of pipes, tanks and equipment to reduce energy costs by up to 20 percent and stand up to harsh environments such as acids, bases and fuels. It can be applied with a texture sprayer, trowel or stiff brush while equipment is in-service. The water-based, low-odor, and low-VOC coating can be used to insulate metal and nonmetal surfaces up to 400 degrees Fahrenheit, including steam pipes, boilers, valves, heat exchangers, ovens, chilled water pipes, and more.

Qteros Inc. and the University of Massachusetts Amherst have received two patents, extending the protection for their ethanol-producing organism dubbed the Q Microbe. One patent issued by the U.S. Patent and Trademark Office covers intellectual property protection for genomic development and the use of gene combinations in Clostridium phytofermentans and other microorganisms to enhance the organism’s innate ability to hydrolyze biomass. The Japanese Patent and Trademark Office approved a patent on the process involving the microbe as well. Qteros calls its process the Consolidated Bioprocessing Platform based on the Q Microbe, which produces enzymes while simultaneously fermenting a wide range of biomass feedstocks into ethanol.

Platts has a new daily ethanol price assessment, known as Platts German FuelGrade Ethanol T2 FOB Rotterdam. The assessment reflects ethanol products quoted in euros per cubic meter, delivered free on board to Rotterdam and holding appropriate sustainability certificates meeting Germany’s standard. Fuel-grade ethanol transactions that are not restricted by the country-of-origin and feedstock also are accepted in Platts’ assessment processes. With this launch, Platts now provides nearly a half dozen ethanol assessments, aimed at offering a more transparent view of price discovery.

“We believe the new assessment will provide

24 | Ethanol Producer Magazine | september 2011

The Andersons Inc. has entered into a grain merchandising agreement with Trotter Inc., Arcadia, Neb., giving the company access to an additional 4.1 million bushels of storage in Nebraska. The Ohio-based Andersons has 275 MMgy ethanol capacity in three plants in Ohio, Indiana and Michigan.

It is a diversified company with interests in the grain, ethanol and plant nutrient sectors, as well as in railcar leasing and repair, turf products production, and general merchandise retailing.

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 sretkaschill@bbiinternational.com.

Please include your name and telephone number in all correspondence.

commodities Natural Gas Report

Where are the bulls?

By Casey Whelan

Aug. 1—It’s difficult to find a bull these days. Increasingly, market observers expect natural gas prices to remain steady or trend downward. This is not an unreasonable expectation since it is difficult to find any fundamental factors either on the supply side or demand side that can move prices up significantly.

On the demand side, the economic recovery is at best anemic. For example, last week the Institute of Supply Management indicated its manufacturing index is 50.9.

The reported index shows very little growth in the manufacturing sector and was much lower than had been expected. This is not a good sign, since manufacturing tends to be energy intensive both in terms of thermal requirements (direct gas use) and electrical requirements (indirect gas use through electric

generation). In addition, the Department of Commerce released estimated second quarter gross domestic demand (GDP) growth of only 1.3 percent—far lower than expected at this point of an economic recovery. Finally, the first quarter GDP growth estimate was reduced from 1.9 to 0.4 percent. These statistics clearly show that baseload natural gas demand is not likely to grow at a robust rate. With each dismal economic data release, the market loses more value.

On the supply side, natural gas drilling and production growth continue to be robust. While the total number of rigs drilling for natural gas has not grown dramatically, the percentage of horizontal rigs continues to increase. That is important since horizontal wells tend to produce significantly more natural gas per well than vertical wells. As

such, production is likely increasing, even though the rig count has been relatively steady.

Natural gas prices have stayed relatively strong this summer due to unseasonably warm weather throughout much of the continental U.S. If weather patterns return to normal, the market will have excess supply relative to demand, storage inventories will grow and the market will again experience gas-on-gas competition. This was the sequence of events that occurred late last summer and produced Henry Hub NYMEX prices below $3 per million Btu. Will we have a repeat of last summer? It’s possible unless we get hurricanes barreling through the Gulf of Mexico.

Corn Report

Summer markets respond to weather ups and downs Aug. 1—The corn market moved the limit after the June 30 planting intentions report was released, and September corn opened July 1 at $6.05. It sprang higher by midmonth on weather concerns. Across the Plains and Midwest, temperatures reached the mid-90s or higher during key pollinating times, prompting market advances. September corn traded to $7.23 1/2 by July 19. As temperatures moderated and rains fell across a majority of the Corn Belt, the price receded. Heat entered back into the market and real concerns were revealed as analysts began to anticipate yields below USDA estimates. September corn futures ended the month of July at $6.65 1/2.

The USDA’s July report had no major revelations. The USDA is using a 158.7 national corn yield with 92.3 million acres planted and 84.9 million harvested. Ethanol demand increased despite subsidies being eliminated by

year end, if not sooner.

Feed demand increased by 50 million bushels.

With 100 million bushels more in ethanol demand, distillers production would increase by 30 million bushels corn equivalent; therefore, the USDA is assuming an increase in feed demand by approximately 80 million bushels. In addition, export demand increased by 100 million to 1.9 million bushels. Carryout was calculated at 870 million bushels, up from the previous 695.

Globally, corn carryout increased from 111.89 million metric tons (mmt) to 115.66 due to higher U.S. carryout, though still be-

26 | Ethanol Producer Magazine | september 2011

BY JASON SAGEBIEL

hind a year ago. The trend has been lower over the past four years for corn carryout and for coarse grains as well. It is imperative there be no production issues domestically and globally this year. Stocks need to rebuild.

report

Regional Ethanol Prices Front Month Futures (AC) $2.891 REGION

SPOT

RACK

West Coast

$2.990

$3.240

Midwest

$3.150

$3.050

East Coast

$3.095

$3.398 SOURCE: DTN

DDGS Report

Regional Gasoline Prices

Cattle moving to market early, reducing DDGS demand BY SEAN BRODERICK July 29—Weather continues to impact both crop development and cattle movement in the Southwest. Cattle are going into the feed yards early and are being marketed much sooner than years past. Low hay and roughage supplies are blamed—some areas have seen only 2 inches of rain in the past six months.

Though DDGS demand was very firm in the early summer, it is going down rapidly as feed yards empty.

Asian demand is down, particularly from China and South Korea, down 71 and 186 percent respectively from last year. South Korea is making its way back from hoof and mouth disease, and China is off due to the anti-dumping case.

Chinese demand has been filled with

containers, and any additional bulk demand appears to be delayed until later in the fourth quarter, as grain shipments will occupy export elevators in the fall.

Fortunately, Mexico demand has been up significantly, and countries in the Middle East and Europe have taken additional tonnage.

Corn prices will dominate the news ahead, but demand is the key for DDGS prices. The dairy industry’s strength will benefit DDGS, as will the ability to substitute distillers for corn. Most ethanol plants will be able to lock in margins for the fall, which will keep supplies up.

More exports are the key to maintaining good DDGS value relative to corn.

Front Month Futures Price (RBOB) $3.1129 REGION

SPOT

RACK

West Coast

$2.908

$3.065

Midwest

$3.095

$3.082

East Coast

$3.010

$3.186 SOURCE: DTN

DDGS Prices ($/ton) location

sep 2011

aug 2011

Minnesota

190

175

sep 2010 95

Chicago

205

202

120

Buffalo, N.Y.

220

215

105

Central Calif.

253

238

152

Central Fla.

240

239

138 SOURCE: CHS Inc.

Corn Futures Prices Date

(Sept. Futures, $/bushel)

High

Low

Close

August 2, 2011

7.11 1/4

6.77

7.11 1/4

July 2, 2011

6.22 3/4

6.03

6.06 3/4

August 2, 2010

4.04 1/4

3.89 1/4

3.90 1/2 SOURCE: FCStone

Cash Sorghum Prices ($/bushel) LOCATION

Ethanol Report

Ethanol prices take turbulent ride through July BY RICK KMENT July 29—At the end of July, the shocking and relatively unexpected rally in the ethanol market seemed to quickly come to an end. On the last two trading days of the month, front-month ethanol prices posted losses of 18 cents per gallon, falling from five-year highs set in the summer of 2006. Just days earlier, the ethanol market seemed to be unstoppable.

After rallying 58 cents per gallon through the month, reports of tight supply had traders and wholesalers anxious to outbid and outlast other competitors in an attempt to gain access to available product.

But this flurry of activity changed when corn futures tumbled lower at the end of the month due to widespread rainfall and cooler temperatures in the heart of the

Corn Belt. Front-month ethanol premiums continue to hold a sizable premium to deferred-month contracts as tight supplies remain and are encouraging aggressive spot-month buying activity.

Crude oil and RBOB gasoline contracts are seeing light to moderate pressure as increased economic uncertainty continues to swirl around both global and domestic challenges. But for the most part, gasoline demand has held impressively stable through the end of July and is allowing for additional commercial market support. The ethanol market has narrowed the price premium to the RBOB gasoline market. This may help to keep demand strong both for ethanol and gasoline in the coming weeks.

July 29, 2011

july 1, 2011

august 3, 2010

Superior, Neb.

6.56

5.64

3.44

Beatrice, Neb.

6.26

5.50

3.40

Sublette, Kan.

6.16

5.41

3.14

Salina, Kan.

6.75

5.59

3.70

Triangle, Texas

6.13

5.89

3.44

Gulf, Texas

7.04

6.22

3.84

SOURCE: Sorghum Synergies

Natural Gas Prices LOCATION

($/MMBtu)

aug 1, 2011

JUly 1, 2011

aug 1, 2010

NYMEX

4.37

4.36

4.77

NNG Ventura

4.37

4.36

4.54

CA Citygate

4.55

4.64

4.44

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production

(1,000 barrels)

Per day

Month

End stocks

May 2011

895

27,756

20,387

Apr. 2011

886

26,591

20,807

May 2010

847

26,244

19,851

SOURCE: U.S. Energy Information Administration

september 2011 | Ethanol Producer Magazine | 27

Photo: Tom Campbel/Purdue Agricultural Communication

distilled

Ethanol News & Trends

Bug Power Mike Scharf’s work with termites has shown that the insects’ digestive systems may help break down woody biomass for biofuel production.

Symbiont Solutions

Purdue research investigates digestive enzymes Delving into termite guts to find the best cellulases or lignocellulases to efficiently convert cellulose and hemicelluloses, even lignin, into advanced biofuels isn’t a new concept within the biorefining community, but researchers at Purdue University say they have discovered a cocktail of enzymes in termite guts that may be better at getting around the barriers that inhibit cellulosic biofuel production derived from woody biomass.

The results, published online in the journal Public Library of Science One, are the first to measure the sugar output from enzymes created by the termites themselves and the output from symbionts, which are protozoa that reside in termite guts and aid in digestion of wood, according to Mike Scharf, O. Wayne Rollins/Orkin Chair in Molecular Physiology and Urban Entomology and lead on the research.

To find the best enzymes, Scharf and

his research partners separated the termite guts, testing portions that did and did not contain symbionts on sawdust to measure the sugars created. Once the enzymes were identified, Scharf worked with Chesapeake Perl, a protein production company based in Maryland, to create synthetic versions.

The genes responsible for creating the enzymes were inserted into a virus and fed to caterpillars, which produced large amounts of the enzymes.

Scharf and his team identified three synthetic enzymes that are able to function on different parts of the biomass. Two enzymes are responsible for the release of C5 (pentose) and C6 (glucose) sugars. The third is able to break down lignin, the rigid exterior found in plant cell walls. Scharf ’s team determined about one-third of the activity came from the host and two-thirds came from the symbiont enzymes.

Before considering any type of scale-up

30 | Ethanol Producer Magazine | september 2011

effort, Scharf says he wants to find the best symbionts that work best with the cellulases to more effectively remove the lignin. “Cellulases can degrade cellulosic and hemicellulosic sugars, including lignin, but nobody has a handle exactly how the termites do it,” Scharf explains. “You have to break that lignin somehow to get the sugars away so that you can depolymerize them. We’re trying now to find the symbiont cellulases that we can combine with host ones we already have, and lignases, to really boost that sugar output.”

Scharf hopes that one day his work will lead to the discovery of a lignase enzyme that could work at ambient temperatures to replace heat pretreatment. “That would be kind of our dream, but more work needs to be done before we get that far,” he says.

—Bryan Sims, associate editor, Biorefining Magazine

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It’s Out There

Study shows ample stover, straw available for cellulosic production Inbicon A/S leaders are not surprised when investors say they can’t imagine widespread cellulosic ethanol production. The sheer scope of an operation that requires 200,000 acres of anything can be difficult to envision, but that’s what it could take to supply a cellulosic ethanol facility such as Inbicon’s with the corn stover needed to produce large-scale amounts of fuel. If wheat straw is the feedstock of choice, that acreage number goes up even further. So in order to prove to investors this type of project is not only feasible, but absolutely doable, Inbicon conducted an extensive crop study and biomass research project to show just how much biomass is available in the Midwest. “Our findings confirm that North America’s great abundance of corn stover and wheat straw is sufficiently concentrated in the prime grain-growing regions to make biomass collection practical and economical,” says Niels Henriksen, chief technology officer at Inbicon. “Farmers and biomass refinery owners alike will benefit.”

The study, conducted by long-time bio-

mass specialist Larry Johnson, found that most of the existing corn ethanol plants have concentrations of 1 million to 2.6 million tons of corn stover within 25 miles of the facility, enough to feed up to four commercialscale cellulosic facilities processing 1,320 tons of stover daily. Of course, as many producers know, the challenge is not finding the feedstock, but harvesting and storing it. Johnson says he’s designed the framework for a com- Abundant Supplies Most corn ethanol plants have 1 million to prehensive harvest, storage and 2.6 million tons of corn stover within 25 miles. The challenge will be logistical. transport system and Inbicon is currently devising product specifications for gy near Spiritwood, N.D., and a corn ethanol the feedstock, which will include specific bale project with the Green Investment Group in sizes, physical characteristics for the biomass Alton, Ill. While challenges remain, Inbicon and density and composition specifications executives say the study proves that there are that will assist harvest equipment manufac- no technical or feedstock obstacles preventing turers. Inbicon is also collaborating on several hundreds of biomass refineries from being U.S. projects, including a hybrid corn and cel- established in the U.S. and Canada. lulosic ethanol project with Great River Ener- —Kris Bevill

Tiny But Mighty How would you like to drive a car that gets more than 1,000 miles per gallon? And how about fueling that car with ethanol? A biofuel-powered car in Europe’s 2011 Shell Eco-marathon did just that, achieving a record-setting 1,197 miles per gallon (when adjusted for energy equivalence with gasoline) using Inbicon A/S’s cellulosic ethanol.

It’s tiny, but the car named Dynamo, which was designed and built by a team of students from the Technical University of Denmark, could actually operate on city streets. The team used a 50cc 4-stroke Yamaha moped engine because its higher compression can utilize ethanol’s higher octane. They

also sculpted the body in a wind-tunnel to improve its aerodynamic performance. The resulting vehicle ran 28 percent farther than its closest competitor, beating out 35 competing European teams. It also beat North America and Asia’s winning mileage, points out Christian Morgen, Inbicon’s manager of international marketing. “Since they use only a liter at a time, I don’t believe there’s any danger of depriving Danish retail customers of our eco-friendly fuel,” he says. Inbicon’s wheat straw-based ethanol is currently available in 5 percent blends at 100 Statoil retail fuel stations throughout Denmark.

—Kris Bevill

PHOTO: KASPER DUNCAN GRAM

Dynamo tops 1,000 mpg

Tiny Car, Big Victory The cellulosic ethanol-fueled Dynamo races to eco-victory at a German speedway.

september 2011 | Ethanol Producer Magazine | 31

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Corn for Hydrocarbons

Rather than retrofitting a corn-ethanol plant to produce i-butanol, n-butanol or use other novel fermentation technologies, three companies are collaborating to turn a traditional ethanol plant into a true biorefinery producing multiple fuels and coproducts.

Luca Zullo, principal of VerdeNero LLC outlined a vision incorporating work that his company, JetE LLC and Gas Reaction Technologies Inc. have done towards expanding the ethanol industry past the limiting factor of the blend wall to produce ethanol and distillers grains as well as dropin replacement fuels and chemicals.. Zullo was one of many presenters at the Biomass ’11: Renewable Power, Fuels and Chemicals Conference held July 26-27 in Grand Forks, N.D. “We believe that the infrastructure and market position established by the corn ethanol industry represents the most logical base on which to build a diversified biorefining industry,” Zullo said, adding that although the U.S. corn ethanol industry is frequently misunderstood and misrepresented, it’s the only domestic renewable fuel industry to reach significant scale and make a measurable impact on the U.S. fuel supply.

Unlike other biorefining proposals, the model Zullo presented keeps the ethanol plant in place as is, including production of distillers grains in its current composition and at its current value. Two additional technologies could be added to an existing ethanol plant, one of which is commercially ready now and the second is development.

JetE, a St. Paul, Minn.-based company, converts low quality corn oil from the ethanol plant, as well as waste vegetable oils and fats when available, into drop-in paraffinic green diesel and green jet fuel. Zullo called

PHOTO: JETE LLC

Add-on technology developed for corn ethanol plants

Biorefinery Model JetE has developed a lab-scale reactor used to make green diesel and jet fuels from fats, oils, greases and other lipids. Three companies are collaborating on integrated technology to add onto corn-ethanol plants.

it a simple process to make better biodiesel than biodiesel. “We are ready for commercial deployment,” he added.

Technology from Santa Barbara, Calif.based GRT uses ethanol as the feedstock to produce hydrocarbon fuel. Although the technology is in an earlier stage of development and is three to four years from commercial deployment, it isn’t completely unknown. Mobil Oil was doing something similar in the 1980s, he said.

Put together at an ethanol plant, the two technologies can turn a 100 MMgy ethanol plant into a 50 MMgy ethanol plant also producing 60 MMgy drop-in replacement fuels.

Or, the same plant could be converted completely to 90 MMgy drop-in replacement fuels only. In both cases, the plant would continue to produce distillers grains.

Zullo talked about several advantages

32 | Ethanol Producer Magazine | september 2011

of full integration of an ethanol plant. First, the JetE and GRT technologies can use waste heat from the ethanol plant. Water can also be recycled in the process. Finally, on average, the integrated biorefinery produces more energy per bushel of corn.

He also pointed out problems with retrofitting ethanol plants for i-butanol, n-butanol, alkanes and other novel fermentation technologies. It’s uncertain if these products will be accepted in the marketplace, he said.

It’s more complex to produce these fuels for them to become a real drop-in fuel and their value and pricing is unclear at this time. In addition, these technologies are highly proprietary and costly. Although distillers grains are produced, it’s likely this source of revenue will be lost, Zullo said, due to the toxicity of the fuels produced and the use of genetically modified organisms. —Holly Jessen

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Ignite the Racetrack

PHOTO: MARIO CLOUSER MOTORSPORTS

USAC selects branded ethanol as official racing fuel

Zipping on Ethanol Mario Clouser Motorsports midget racing teams were using Ignite ethanol before the recent decision to make the fuel the official fuel of United States Auto Club racing.

Mario Clouser, who owns and races midget racecars with Mario Clouser Motorsports, is pretty excited about the fact that Ignite Racing Fuels is now the official racing fuel of the United States Auto Club. The open-wheel racing sanctioning body will switch from methanol, a fuel with higher emissions than ethanol. “The stuff is pretty toxic,” he tells EPM. “You really can’t breathe the exhaust by any means. It will make your eyes water and your nose run. It’s some pretty nasty stuff.”

USAC and National Biofuels Distribution, in association with ICM Inc., announced the three-year sponsorship deal July 28. NBD produces Ignite High Performance Ethanol racing fuels with octane ratings of 108 and 114. The company also markets E98 to companies and supplies E30 and E85 for municipal, county and state flex-fuel vehicles. “We are excited to take this direction toward environment-friendly fuel usage,” says USAC President and CEO Kevin Miller.

Though significant, making the racing

environment easier to work in isn’t the biggest advantage to using Ignite ethanol fuel on the racetrack. The No. 1 advantage is better fuel mileage, Clouser says. Methanol produces less heat per gallon, meaning more must be burned to produce the same amount of energy. “With Ignite you can burn less fuel, make the same amount of energy, therefore you don’t have to use as much of it,” he says.

Besides better mileage, another benefit for racecars is that carrying around less fuel translates into better handling. It also means smaller changes in the weight of the fuel during the race. “So the car balance stays a lot more neutral throughout the race rather than changing dramatically from the beginning to the end,” he says. USAC’s testing of the fuel showed a 40 percent reduction in consumption compared to methanol.

The sanctioning body for Mopar Midget National Championship, Sprint Car Series and Silver Crown Series tested Ignite fuel through Technical Services Inc. and Engler Machine & Tool.

In the meantime, Clouser periodically tested the fuel on the racetrack this past year. He’s excited USAC finally approved Ignite, something he’s been asking the sanctioning body to do. “We’ve been wanting to run ethanol for a while,” he says. “I’m anxious to see how the racing is next year and how everyone reacts to the fuel.”

By using ethanol as a race fuel, USAC follows in the footsteps of other race-sanctioning bodies. The difference is, this threeyear partnership will mean much larger amounts of fuel will be used on racetracks across the nation, says Jay Berry, co-founder and vice president of NBD. NASCAR, which started using E15 this racing season, will use about 75,000 gallons of ethanol per year. IndyCar, which currently runs on E100 but plans to debut an E85 car in 2012, uses about 170,000 gallons of ethanol, according to figures provided by Berry. In contrast USAC will use 2 to 3 million gallons of ethanol in a year, Berry tells EPM. —Holly Jessen

september 2011 | Ethanol Producer Magazine | 33

PHOTO: MATTHEW WISNIEWSKI, U.S. DOE GREAT LAKES BIOENERGY RESEARCH CENTER

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Eye on the Future Great Lakes Bioenergy Research Center researcher Dana Wohlbach prepares for an experiment in her lab in Madison, Wis.

Appetite for Improvement

Researchers examine why certain yeasts like to eat C5 sugars and others donâ&#x20AC;&#x2122;t Using Mother Nature as their teacher, researchers at the U.S. DOEâ&#x20AC;&#x2122;s Great Lakes Bioenergy Research Center, along with the DOEâ&#x20AC;&#x2122;s Joint Genome Institute, have sequenced the genomes of two types of yeasts found in bark beetles and then compared and contrasted the results with other yeastsâ&#x20AC;&#x2122; genome sequences to determine which can best convert the elusive C5 sugars of cellulosic material to ethanol. What they found surprised and encouraged them, and left them with more than enough work to fill the next several years.

Yeasts currently available for biofuel production eat C5 sugars, specifically xylose, slowly and inefficiently, if at all. Because much of the sugar in hemicellulose is comprised of those five-carbon sugars, ethanol yields are limited without a yeast that has an appetite for C5s, according to Audrey Gasch, associate professor of genetics at the University of Wisconsin-Madison and principal investigator. â&#x20AC;&#x153;Thatâ&#x20AC;&#x2122;s one of the big bottlenecks in making cellulosic ethanol economically feasible,â&#x20AC;? she says. Research-

ers have explored this issue for decades, but most studies have focused on individual strains. This time, researchers decided to examine some of natureâ&#x20AC;&#x2122;s best xylose eatersâ&#x20AC;&#x201D; yeasts found in the hindgut of wood-eating bark beetlesâ&#x20AC;&#x201D;and compare them with other yeasts to try to understand why some like C5 sugars and some donâ&#x20AC;&#x2122;t. â&#x20AC;&#x153;By comparing the genome sequences and expression patterns of many yeastsâ&#x20AC;&#x201D; rather than just looking at oneâ&#x20AC;&#x201D;we were able to identify elements common to all xylose-fermenting yeasts, and elements absent from nonxylose fermenting yeasts,â&#x20AC;? says Dana Wohlbach, a postdoctoral researcher at the UW-Madison and lead author. â&#x20AC;&#x153;We were expecting to see pretty distinct differences, but actually what we found is that in terms of gene expression, they were very similar.â&#x20AC;?

This finding indicates that the ability of certain yeasts to consume xylose has been lost relatively recently and that the genes to recognize the sugar may still be present. â&#x20AC;&#x153;From an ecological and evolutionary standpoint, that was very interesting,â&#x20AC;? Wohlbach says.

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The researchers identifed 40 genes of interest and tested 10 genes so far to find two that improved a nonxylose-consuming yeast’s ability to eat that sugar. “Twenty percent is a much higher success rate than any of us thought,” Gasch says. Many years of testing lie ahead, but researchers believe there could be a hidden gold mine somewhere in the data just waiting to be discovered. While most of the work so far has been conducted at the petri dish scale using pure, liquid sugars, a few tests have been run on corn stover that has been pre-treated using the University of Michigan’s AFEX process. Researchers would like to conduct more tests in industrial conditions using various feedstocks, because preprocessing treatments used for cellulosic materials can be very stressful for

the yeasts and will impact their ability to consume the sugars. Wohlbach says the ideal yeast will be one that consumes both C5 and C6 sugars simultaneously. “That would be the Holy Grail,” she says.

Gasch points out that just as there will be a need for a host of pretreatment processes to accommodate various feedstocks, a variety of yeasts will be needed to suit those systems. Gasch believes that they might be able to make their first C5-eating yeast strain available to industry within the next year. “We would like to do more work on it, but our goal is to make an impact for the country so certainly we’ll make the strain available,” she says. —Kris Bevill .

Broadening the Scope

business relations where they had a chance to trial this yeast already at large scale. We bring those things together and it turns out we now have a very broad market presence with this, but we also have big versatility in the fact that we can use several yeast strains depending on the situation.”

Various preprocessing treatments can negatively impact yeasts in different ways, so it is vital to develop yeast strains that can be used effectively with those treatments and produce ethanol efficiently. “That is where the focus of our work is now,” Claassen says. “The key is to make it robust, to make it work under the different conditions.”

DSM is heavily focused on the U.S. because it offers the most favorable overall conditions for the commercialization of cellulosic ethanol, but Brazil is becoming more aware of its potential ethanol production from sugarcane bagasse, which until recently has been used only to burn to generate electricity, Claassen says.

Like other enzyme and yeast developers, DSM has a number of strategic partnerships with cellulosic ethanol producers, including Abengoa, to test its enzymes and yeasts. The acquisition of the C5 Co. brought with it that company’s partnerships with producers and technology developers such as Mascoma Corp. and Chemtex.

—Kris Bevill

DSM to expand offerings for cellulosic producers Life sciences and materials sciences company Royal DSM has acquired Netherlands-based C5 Yeast Co. for an undisclosed amount in a move that should advance its already unique position as an enzyme and yeast provider for second-generation biofuels production.

Volkert Claassen, vice president of strategy and key partnerships for DSM’s biobased products and services division, says that while DSM already had the capability to convert both C6 and the elusive C5 sugars to ethanol, C5 Yeast Co. offered a few variations that were extremely attractive. “Before we joined with the C5 Co. we had done our own work with xylose and had developed quite a strong position in arabinose as well,” he says. “So we had the combination, but we didn’t have exactly the same xylose enzyme that C5 Co. had. Also, the C5 Co. had early IP [intellectual property] filings which gave them a good position. On top of that, they had developed a number of important

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PHOTO: LIGNOL

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Moving Ahead Lignol, where this researcher works, announced it will move forward without U.S. DOE funding on a commercial-scale plant to produce ethanol from wood.

Lignol Skips Ahead

Project no longer funded by DOE It’s a little frustrating, admits Ross MacLachlan, president and CEO of Lignol Innovations Inc., the U.S.-based subsidiary of Lignol Energy Corp. After substantial changes to its proposed woodto-cellulosic ethanol project—including eyeing commercial production without going through the demonstration phase— Lignol will move forward without U.S. DOE Biomass Program funding after using only a fraction of the total $30 million awarded the company in 2008.

On the other hand, MacLachlan understands that it’s a time when all government agencies are looking at every funding project with increased scrutiny. “I think I understand what the DOE is up 36 | Ethanol Producer Magazine | september 2011

against,” he tells EPM. “As we all know in Washington, D.C., they are looking at what programs they need to claw back on.

Everyone is reading the newspaper.”

When the project was originally presented to the DOE it was focused on producing mainly ethanol and lignin, he says.

However, after plans for a demonstration project in Colorado were halted, the company made some substantial changes to the plan. “What we wanted to do, in order to make the project more commercially viable,” he says, “is change the configuration to produce more chemicals and do it in a different configuration than we had presented. And that fell outside the criteria for the program.”

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Today, Lignol is aiming to build a much larger facility than demo-scale, perhaps in the 10 to 25 MMgy range, he says. The plant, for which a location has not yet been selected, will actually produce more renewable chemicals than cellulosic ethanol. While it wouldn’t be correct to call ethanol a byproduct, it’s no longer the focus of the project. “The revenue that we get is less than 50 percent of the revenue from the plant,” McLachlan said. “We are getting a lot more revenue from other renewable chemicals.” Although a commercial-scale plant is typically 25 MMgy or more, Lignol feels that if it structures the project correctly the company will meet the definition. “Commercial to us simply means,

providing your investors a reasonable rate of return on the deployment of the next facility,” he says.

What gives the company the confidence needed to skip the demo phase?

Lignol spent $30 million to $40 million on its Cellulosic Ethanol Development Centre near Vancouver, British Columbia, where it operates a pilot plant, an enzyme development laboratory and an engineering group. Although there are benefits to a demo phase, the Lignol pilot is a robust operation that provides a lot of those same benefits. The company intends to leverage it to the fullest. “That puts it in the position to do a commercial scale plant,” he says. —Holly Jessen

Data Dilemma

Corn and distillers grains numbers questioned The ethanol industry has met two milestones this year in USDA data reporting. Earlier this year, the agency began including distillers grains in its supply/demand report and in July, it reported that ethanol had topped the feed markets to become the No. 1 user of corn in the U.S. While both milestones may be viewed as somewhat positive for the industry, they have also brought up interesting questions as to how accurate the government’s data is and how up to date the ethanol industry is with its own numbers.

In May, the National Pork Producers Council testified before a House agriculture committee that it does not believe the USDA is accurately estimating the amount of distillers dried grains with solubles (DDGS) in its monthly reports. The USDA uses an industry average of 17 pounds of DDGS per bushel of corn to calculate its overall estimates, but the NPPC says it has anecdotal evidence indicating yields are closer to 15 to 16 pounds per bushel. “It’s not a huge reduction, but in a world that needs as

many ingredients as we can get our hands on, we need to be clear about how many pounds of DDGS are being produced per bushel so we get a good accounting of it,” says Steve Meyer, president of Paradigm Economics and consultant for the NPCC. Following the July report that ethanol had become the top user of corn, the Renewable Fuels Association said it didn’t believe the USDA was accurately estimating ethanol production for the year and also did not properly account for distillers grains, which are returned to the feed market and help alleviate price pressure from corn losses.

Jerry Gidel, an associate at North America Risk Management Services Inc., says he believes the onus is on the ethanol industry to prove its yields. “The USDA does as good as they can,” he says. “The biggest problem is that there just is not a good set of information. There’s not a set of data out there that people can utilize and say, ‘Yes, we’re creating this much DDGS and our conversion ratio is this.’ We have no statistics.” —Kris Bevill

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Running on Apples Tim Bomaci of Washington State is working to fuel his pickup with apple ethanol for the next year.

Apple Ethanol

Washington man fuels truck with waste apples A seventh-grade science teacher from north-central Washington State has his sights set on teaching sustainability through a project to produce ethanol from waste apples.

Even though the feedstock is free, getting set up to produce ethanol wasn’t, Tim Bomaci tells EPM. He estimated it cost him $400 a gallon or more to produce his first tank of apple ethanol, which he used to drive his 1990 Ford pickup in the Apple Blossom Parade held in May in Manson, Wash.

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Bomaci produces ethanol using a wood chipper, a washing machine and a still. He can produce four gallons in about four hours. Now that he has all the equipment he needs, his only costs will be for yeast and electricity. In time, he may try producing ethanol with other fruits such as cherries. His goal is to produce enough ethanol to keep him driving for the next year, or about 2,000 miles.

Originally, Bomaci hoped he could make ethanol production a school project. He can’t put a distillery on school property, though, so he’ll incorporate what he can into his science classes. He’s also offering to let teachers come to him with their students—such as for chemistry or business development classes.

Finally, he’s considering continuing his own education so he can teach sustainability classes at the high school level.

—Holly Jessen

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All Eyes on Iowa

Iowa’s corn crop residues soon to become hot commodity After a decade of development, Poet LLC is ready to break ground on its first commercial-scale cellulosic ethanol facility this fall, pending final approval of a U.S. DOE loan guarantee. Jim Sturdevant, the director of Poet’s 25 MMgy cellulosic project, dubbed Project Liberty, said recently that the company began developing its cellulosic technology in 2001 and through the course of testing and validation, the company has been able to increase the efficiency of its production process.

It takes time to develop these technologies, but perhaps even more importantly, it also takes a lot of money. Project Liberty is expected to cost $261.2 million, according to the DOE. In early July, the agency issued a conditional commitment for $105 million to support the project.

Sturdevant says financing has indeed been a tremendous challenge and the due diligence portion of the loan guarantee process has been rigorous, but in late July he said he was optimistic that the loan guarantee could be closed by the end of September.

If Poet stays on track and is able to begin constructing the facility this fall, it should produce cellulosic ethanol from corn cobs at about 50 cents more per gallon than gasoline when it churns out the

first round of ethanol in 2013. That cost is expected to be reduced as the company works out the kinks of the process and, eventually, it plans to install cellulosic facilities next to all of its 27 corn-based ethanol plants, producing up to 3.5 billion gallons of cellulosic ethanol annually.

Project Liberty is expected to provide a substantial economic boost to its hometown of Emmetsberg, Iowa, supplying 40 permanent jobs at the facility and generating approximately $14 million in additional revenue for area farmers. Also in Iowa, Dupont Danisco Cellulosic Ethanol LLC is making headway on its 25 MMgy commercial-scale cellulosic ethanol facility— Project Blackhawk—which is expected to provide 60 full-time jobs at a facility near the town of Nevada and create additional revenue opportunities for area farmers by way of corn stover.

DDCE is financing most of its project privately, but has been approved for a $9 million grant from the Iowa Power Fund Board in exchange for the promised job creation. Total project costs for Project Blackhawk are expected to exceed $235 million. As of late July, the company had not yet set a groundbreaking date for the plant, but said it should be ready to begin producing in 2013. —Kris Bevill

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september 2011 | Ethanol Producer Magazine | 39

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yield

The Quest for

Maximum Yield

Ethanol producers who donâ&#x20AC;&#x2122;t relentlessly focus on yield may be leaving precious revenue on the table

By Holly Jessen

Yield Booster Enzymes are added in this undated photo from Corn Plus LLLP, a 49 MMgy ethanol plant in Winnebago, Minn. Enzyme choices and dosing are two factors in maximizing yield.

PHOTO: BBI INTERNATIONAL

42 | Ethanol Producer Magazine | september 2011

yield

In 2010, plants with higher-than-average ethanol yield brought in $1.6 million in revenue over and above what the average plant earned. On the flip side, plants that lagged in ethanol yield performance failed to capture $1.7 million in revenue compared to the average.

At a time when every penny in profit counts, those are startling numbers as reported in the “Biofuels Benchmarking Annual Report 2010” prepared by Christianson & Associates PLLP. On average, a typical 60 MMgy ethanol plant squeezes 2.724 gallons of ethanol out of a bushel of feedstock adjusted to 15 percent moisture. The top 25 percent producers, however, ratchet that number up to 2.778 gallons while the laggards in the bottom 25 percent bring in only 2.671 gallons.

From leaders to laggards, there’s a $3.4 million spread in revenue with just a 1 percent difference in ethanol yield, clearly outlining why yield is such a vital component of a profitable ethanol plant. “Things that we are seeing come through for improvements for yield really have the potential to add a lot

september 2011 | Ethanol Producer Magazine | 43

yield

Undenatured Ethanol Yield (Gallons per Bushel)

Industry Production Efficiencies 2.85 2.80

The undenaturedethanol ethanolyield yieldper perbushel bushel of of feedstock feedstock adjusted adjusted to 15% The undenatured to 15 percent moisturerather has remained rather overyears the past moisture has remained steady over thesteady past two with the industry average at approximately 2.725.

The leaders have two years with the industry average at approximately 2.725.been averaging 2.790 and the laggards at approximately 2.660 during this The leaders have been averaging 2.790 and the laggards at period. So, what does a difference in conversion rate mean especially approximately duringbeen this increasing period. So,and whatgrind doesmargins a difference when feedstock 2.660 costs have are becoming slimmer? in conversion rate mean, especially when feedstock costs have been increasing and grind margins are becoming slimmer?

2.75 2.70 2.65 2.60 2.55 2.50 Q1 09

Q2 09

Q3 09 Average

Leaders (Top 25%) Undenatured Ethanol Yield 2.778 Average Feedstock Price $3.90 Total Feedstock Cost $84,233,261 Revenue Benefit over Average $1,669,823

Q4 09

Q1 10

Leaders

Average (60 MMgy Plant)

Laggards (Bottom 25%)

2.724 $3.90 $85,903,084 $0

2.671 $3.90 $87,607,638 ($1,704,554)

Q2 10

Q3 10

Q4 10

Laggards

SOURCE: CHRISTIANSON & ASSOCIATATES

The chart above shows the effects undenatured ethanol yield can have on a typical 60 MMgy plant’s bottom line using the industry average for 2010. As shown, a leader in undenatured ethanol yield has the opportunity to earn $1.6 million over the average plant while a laggard

of profit to be a plant’s line,” says $1.7 Bradmillion much like athis soybean crusher decides four, spread on thebetween other hand, usually more would giving bottom up approximately during one year period.

Therewhether is a $3.4 million a leader and offer a laggard Saeger, a business analyst for Christianson & it will focus on producing more soybean oil attractive margins, meaning the plant runs which indicates a considerable amount of revenue can be made by increasing a plant’s conversion rate. So, in times of tight margins, it flat Associates. meal. Basically, running at fulltocapacity isn’t out, margin focusing less onand yield and moreoverall on galappears that above average conversion rateor is extremely important in order increase the grind revenue help impact plant profitability.

Since there so many affectdecision the conversion rate, is important for“This management to really focusday on plant While a plant should always beare aware of factors always that the right for IRE. “Ifit we are lons. isn’t a dramatic change to day,” operation details that in order to identify possiblepresented changes and increase margin, their undenatured ethanol yield. its rate of conversion, doesn’t necessarily withultimately a tight forward we he says, “This is a more gradual change.”

Energy Usage (BTUs per Production mean ethanol plants should aim for the high- may cut back rate to focus on efficiency verAnother thing to thinkGallon) about is accurateEnergy usage per gallon was fairly consistent in 2010 compared to 35,000 est numbers possible 365 days a year.

“If there sus volume,” he says.

“We’ll play those two ly calculating yield.

“Every facility will have 2009. The industry appears to have hit a plateau for energy are large margins in the ethanol industry, peooff one another depending on what’s going a sweet spot.

You need to figure it out and consumption gains until a technology improvement enters the 30,000 ple will push their plants for production, and on in the marketplace.”

That doesn’t happen see where it is, if you haven’t,” Jakel suggests. marketplace in mass. The energy leaders typically produce WDGS. 25,000 not worry about yield,” says Jon Buyck, also a on the fly, though.

“We make operational de“It takes time.

It’s not easy.”

That means acThis is apparent as usage fro the WDGS producer was 20,000 BTUs business consultant for Christianson Assobased on executed commercial deci- curate data plus measurement and calibration in 2009 and 19,200 BTUs in 2010.&The DDGScisions producing plants had 20,000 annualmargins averagetighten, of 29,000 BTUs and 28,000 BTUs for ciates.an“When yield becomes sions,” he 2009 adds. and “In other words, once we’ve devices. “We spent a lot of money in the last 2010 respectively. in 2011,between we will take detailed look at margin15,000 a bigger player.

The difference prof-a more locked in for a set for ethanol pro- year in terms of improving that measurability Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 usage by in utilizing the data gathered in our new Operationalduction, we’re itablyenergy and loss will be the yield.” going at our facility,” he adds.

Benchmarking service that willofbegin mid-year 2011.

Leaders Laggards Neal Jakel, general manager Illinois to run those gallons—Average Another panel presentation at FEW exRiver Energy LLC, a 100 MMgy plant in Rowe won’t speed up, we plored technologies and services offered by Similar to energy, electric usage remained relatively consistent over chelle,the Ill.,past spoke thiswith topic a panel slow down.” companies for maximizing yield. A1.05 representwoon years theduring average being 0.70 kWh per gallon andwon’t leaders at 0.50 kWh per gallon.

Laggards in usage averaged kWh per presentation at the International Fuel EthaTraditionally, the tative of Fluid-Quip Process Technologies gallon which allows for electrical technology improvements. Each year, the electric usage trend shows an increase of approximately 0.10 kWh nol Workshop & Expo in Indianapolis quarter the months.

Inc. spoke about a new advance in technology for all groups duringheld the third quarter due to the increased need forfirst cooling duringofsummer in late June. IRE has a serious focus on two year is a tougher time for grinding corn to increase access to starch.

Another factor that is extremely important industry is waterpoint usage. Currently, therevealed average ethanol uses things, Jakel says.

The first is yield, yield and to review for the ethanolfrom a margin Novozymes its newplant mathematical to 3are gallons of water per gallon of undenatured ethanol production, with That’s leader plants lessfor than 1.5 gallons water per gallon yield.2.5 “We a commodity based industry. of view. when using model calculating theofcorrect enzyme dosproduction on norm—they’re average. This usage is an area the Benchmarking IRE program will focus ontoin 2011 and beyond as we gather additionalCorp. data.

Tightofmargins are the not the typically works age using plant-specific data.

Verenium Goal Setter exception in this industry.” The company’s An ethanol plant maximize its yield and outlined the specific benefits four ethanol Overall, it is encouraging to see the undenatured ethanol match its yield as well as energy and electrical usage remain relatively consistent over second focus is on uptime, minus scheduled should produce as much etha- plants have garnered in using its trademarked production goals to the last couple of years. This is a result of experienced management and maturity of the ethanol industry. market conditions, maintenance. nol as possible from alpha-amylase enzyme Fuelzyme.

Illinois River Depending on margins, IRE makes a de- says the corn it purchases.

Energy General cision to run for higher yield or more gallons, Manager Neal Jakel.

Quarters three and 44 | Ethanol Producer Magazine | september 2011

© 2011 Christianson & Associates, PLLP

Pg. 15

PHOTOs: FLUID QUIP

yield

Quite a Conundrum A 42 MMgy ethanol plant had this temporary skid unit installed for testing and likes the system so well it hasn’t wanted to shut down to install a more permanent module.

Wet Mill to Dry Mill

Fluid-Quip has been well known in the wet mill world the past two decades. Five years ago, the company began searching for applications for its technology in dry mill ethanol plants, says Michael Franko, technical projects manager. As the company developed a protein recovery system, it noticed the potential for accessing more starch and increasing yield. It is now marketing its Selective Grind Technology to dry mill ethanol plants. “This equipment is standard equipment we sell regularly into the wet mills—it’s just used in a configuration for the dry mills,” he says, adding that the company has already seen a significant amount of interest from dry mills.

John Kwik, director and principal of Fluid-Quip, spoke about the new technology at FEW. The mill starts with a paddle screen that separates small particles and liquid from the wet grain, Franko explains.

“We don’t want to waste energy and horsepower trying to grind that,” he adds. Larger particles remain on the screen and are moved to the mill where they are further processed with grind and sheer action to

What a Grind A close-up view of the Fluid-Quip grind equipment.

help release additional starch. Specifically, the system gets at the starch in the grit, or the horny endosperm, which has been traditionally hard to access. Then the liquid and ground solids stream combine in the collection tank. The process, which can also be run in series, is patent pending and utilizes proprietary plate designs.

Producers could also take it a step further by installing Fluid-Quip equipment to target the liquid stream for front-end corn oil extraction, also patent pending, Franko says.

The system has been enthusiastically accepted at a 42 MMgy ethanol Stepping Stone plant, where it was to the Future Fluid-Quip’s Michael installed for testing.

Franko says the Even though FluidSelective Grind Technology is Quip built the steel something plants can structure as a “bare install today to open up doors to becoming bones” temporary a biorefinery of the installation, the unfuture.

named production facility was still running it in July, more than six months after it was put in place. “Once they saw the results they never wanted to turn it off,” Franko says. The system has shown a yield increase of 2.5 percent, averaged over six months. Yield increases start out higher, but decrease as plates wear. The company is studying plate life to provide a schedule of recommended plate replacement, which they anticipate will be a small cost for ethanol plants.

Besides increasing yield, plants will see an energy savings as a result of FluidQuip’s Selective Grind Technology. For one thing, plants won’t have to grind as aggressively with their hammer mills. Also, with less starch going through to the distillers grains, less energy will be needed for a plant’s dryers, Franko says. Some ethanol plants today are producing DDGS with 8 percent starch—that’s a lot of starch going out the door, he says. Finally, with less starch in the DDGS, producers will find the product’s protein and fat numbers will go up. “It’s exactly the same corn coming

september 2011 | Ethanol Producer Magazine | 45

in but because you have taken that starch portion out, you’ve got a higher pro-fat number, which is very attractive to a lot of the feeders,” he says.

That benefit alone provides plants with the potential to up their corn oil extraction numbers. Producers capturing corn oil on the back end tell Franko that when more starch is removed from their DDGS and the pro-fat numbers go up, it allows higher rates of corn oil removal, which means more revenue. Otherwise, producers have to watch those pro-fat numbers so not to go out of spec for their customers, meaning they can’t remove as much corn oil as they have the ability to do. “You invest a lot of capital in oil recovery and you can’t even floor it because of your requirements,” Franko says. “Not only does [Selective Grind Technology] let you get extra alcohol and save you energy on drying, but it can also allow you to use that oil recovery to the fullest.”

The nice thing about this system is that it provides customers with affordable benefits today while also opening up doors to future technologies such as frontend oil extraction and separating fiber and protein through fractionation. It’s a path to becoming a biorefinery of the future with the addition of more coproducts and

PHOTOs: FLUID QUIP

yield

Picking the Right Particle A paddle screen is part of Fluid-Quip’s Selective Grind Technology.

fiber for cellulosic ethanol, Franko says.

Another exciting possibility in research and development now is the diversion of a portion of the liquids stream directly to fermentation, skipping the liquefaction step because it already contains fermentation-ready sugars. “I think we are going

46 | Ethanol Producer Magazine | september 2011

to see a really neat secondary yield benefit, because we pull off the sugar that is ready to go,” he says. “You don’t have sugar that travels and fills up the liquefaction tank when it doesn’t need to be there.”

PHOTO: NOVOZYMES

yield

How Much? Novozymes has a two-fold approach to maximizing yield. The first is continued research on its enzymes and the second is a new model that determines how much of each particular enzyme individual plants should be using.

What’s Math Got To Do With It? The Novozymes North America Inc. presentation at FEW was about a new data analysis system the company is now using to help an ethanol plant find its optimal enzyme dosing level. The presenter, Nicholas Giffen, a scientist and data analyst, developed what Novozymes is calling its Neural Network Model, which uses complex modeling to identify linear colorations between several variables at once. Several years ago, Novozymes analyzed mashes from more than 40 ethanol plants, in an effort to discover how to increase yield, Jack Rogers, regional marking manager, tells EPM. The results showed that, on average, about 7 percent of available starch was not being converted to ethanol. “That told us that

there was a lot of room to go for improving yields for our customers,” he says.

Novozymes has taken two paths in an effort to help improve yields for ethanol plants. First, the company has been developing and bringing new enzymes to market that break down starch All in the Data more effectively. The Novozyme’s new company has a prodNeural Network Model can help plants uct line of enzymes optimize enzyme with three levels, the dosing and increase yield, provided the last of which is its data going in is correct, premium product. It says Jack Rogers.

costs more but also has the ability to access more starch that other enzymes may not be able to convert. “Not all mashes respond the same way to all products, so you have to get a good match for the plant and the type of conditions,” Rogers says.

Novozyme’s second strategy is about finding the right dosing level for each individual plant—not too much and not too little. “It’s a matter of optimizing both types of glucoamylase or saccharification enzyme and the dose,” he says. That’s where Giffen’s mathematical model comes in. Instead of wasting time and money finding the right enzyme dose by trial and error or educated guesses, Novozymes can help customers come up with solid num-

september 2011 | Ethanol Producer Magazine | 47

bers based on individual plant data. And, if a plant’s process parameters change, the model can be used to quickly recalculate.

In the past, Novozymes has used simpler models to find optimal dosing but “they really didn’t capture the complexities of the ethanol process, like this one,” Rogers says.

Giffen spent about six months developing a model that would help capture what’s happening in a dynamic environment and, as of FEW, the company was starting to offer it as a service to customers. “It gives you a lot better insight into what’s actually happening in the process,” he says.

Increasing ethanol yield at an ethanol plant can have a big impact on the bottom line. That’s why it’s so important for plants to find their optimal dosing levels as enzymes are a great lever for increasing ethanol yield, Rogers says. “In the end, when you run the numbers, just about any slight gain in ethanol yield is going to pay off for a plant,” he says. “The value of the ethanol produced far outweighs the cost of the enzyme.”

PHOTO: NOVOZYMES

yield

Ongoing Research A pilot-scale fermentor is used at Novozymes’ North American headquarters in Franklinton, N.C.

48 | Ethanol Producer Magazine | september 2011

PHOTO: VERENIUM

yield

Letting pH Ride Verenium researchers have developed the alpha-amylase enzyme, Fuelzyme, that works in a broad pH range, reducing pH adjustments before and after liquefaction.

Factoring Out pH

In another presentation about enzymes, Kulinda Davis, Verenium Corp.’s director, grain processing enzymes, shared results from the use of its new alpha-amylase enzyme at several ethanol plants. Fuelzyme offers plants multiple benefits, including a 1 to 4 percent increase in ethanol yield. “At an ethanol plant size of 50 million gallons or 100 MMgy that translates into a significant amount of revenue that goes directly to the bottom line,” Davis tells EPM. The enzyme’s “unique mode of action” introduces a substrate into the fermentation process that is particularly suitable for saccharification, the second step in ethanol production. That means using Fuelzyme as the plant’s alpha-amylase enzyme reduces the amount of glucoamylase enzyme needed, she says. It also allows plants the freedom to stop adjusting pH levels at different points in the process. With other enzymes, pH levels are adjusted upward to 5.7 or 5.8

in the mix tank, using ammonia and other chemicals. After liquefaction pH is adjusted down using sulfuric acid. Fuelzyme, however, works in a broad range, from 5 to 5.8 pH, meaning chemicals needed to change pH levels are reduced or eliminated, she says.

Western Plains Energy LLC, a 55 MMgy plant in Oakley, Kan., started using Fuelzyme at 5.15 pH and increased its yield by 1 percent. In addition, the company reduced residual starch in its DDGS by 33 percent. The plant also noticed greatly pH Workhorse reduced Maillard reKulinda Davis says using Verenium’s actions in its slurry, alpha-amylase which leaves behind a Fuelzyme reduces costs for chemicals sticky brown goo on as well as for a plant’s vessels. The benefit glucoamylase enzyme needs. comes about because

ammonia, a nitrogen source required for Maillard reactions, was eliminated, she says.

Hankinson Renewable Energy LLC, a 120 MMgy ethanol plant in Hankinson, N.D., picked Fuelzyme because of its focus on high quality distillers grains with low sulfur content. The company had been using the enzyme about six months as of FEW and had eliminated a truck load per week of sulfuric acid deliveries, saving the company an estimated $1.2 million yearly. In addition, the company’s distillers grains show a 25 percent reduction in residual sulfur.

The final example given was of AE Advanced Fuels Keyes Inc., a 55 MMgy ethanol plant in Keyes, Calif., that selected Fuelzyme due to concerns about harsh chemicals used in ethanol production. Thanks to Verenium, the plant, which is located across the street from a school, received the necessary approvals to restart. “It’s a very environmentally friendly process,” Davis says.

september 2011 | Ethanol Producer Magazine | 49

PHOTOs: LALLEMAND

yield

Making it Work Yeast counts are part of the routine work at an ethanol plant, pictured above. Lallemand and Xylogenics are developing enhanced yeasts offering increased yields.

More Yield Strategies Other companies introduced new products or displayed equipment at the FEW. Almost a year after signing an exclusive agreement to develop and commercialize yeasts for the grain ethanol industry, Lallemand Ethanol Technology and Xylogenics Inc. have delivered. The new patent-pending, as yet unnamed, yeast offers ethanol producers an uptick in yield. “We have seen anywhere from 2 and 4 percent increase in yield,” says Craig Pilgrim, marketing manager for Lallemand.

The new yeast is currently undergoing plant-scale testing at two or three ethanol facilities and is available in liquid form for long-term plant trials. Besides producing more ethanol with the same amount of corn, the yeast reduces the time needed for fermentation. Pilgrim said he couldn’t give exact figures but that it might be somewhere around a couple hours. “That’s one of the

Under the Microscope The yet unnamed yeast offers increased yield, and reduced ingredient costs and fermentation time, Lallemand says.

things that we’re trying to pinpoint in testing on the larger scale,” he tells EPM. Unlike other yeasts, the new yeast prefers maltose to glucose. In fact, it’s designed to remove glucose repression, preventing the formation of lactic acid or glycerol. “The sugar uptake kinetics are a little bit different,” he says, adding that’s what allows for increased yield and shortened fermentation time.

It’s obvious that increasing yield can have a big impact to the financial health of an ethanol plant, Pilgrim says. Lallemand calculates that increasing a 50 MMgy ethanol plant’s yield of 2.75 gallons per bushel of corn by just one percent can bring in $1.29 million in additional profit. That’s calculated with a $2.59 market value of ethanol and excluding the cost of the process change. Increasing the same plant’s yield from 2.75 gallons of ethanol per barrel by 4 percent would

50 | Ethanol Producer Magazine | september 2011

bring in $5.1 million in profit. “Our success is defined by our customer’s success, whether it be efficiencies attained, increased volume output or greater profitability,” says Bill Nankervis, Lallemand general manager. “Because of the introduction of this technology, we expect our customers to realize real benefits that help them remain in the black in today’s challenging market environment.”

Surprisingly, the new yeast has roots in research at the Indiana University School of Medicine to inhibit the growth of cancer cells. After realizing what they learned could be applied to the ethanol industry, and eight more years of study, Xylogenics, an Indianapolis-based company, was formed in 2008.

The partnership between Lallemand and Xylogenics came about to engineer a new class of industrial ethanol yeast and bring it to the market. Under the terms of the agree-

yield

ment, Lallemand, a U.S. business unit of the Canadian yeast and bacteria producer Lallemand Inc., is responsible for process development, manufacturing and commercialization of the new yeast while Xylogenics will receive patent license fees and royalty payments.

The process to name the new yeast began at FEW. More than 100 attendees responded to an invitation to submit ideas for a name. The company is currently going through those suggestions to pick a winner, Pilgrim says.

At the AkzoNobel booth, Danny Haynes, senior technology coordinator, talked about an experimental product that works with enzymes to increase yield. It’s an enzyme accelerant in the product-development phase at Eka Chemicals, a business unit of AkzoNobel. The accelerant could increase ethanol yields by 2.2 percent, Haynes tells EPM. AkzoNobel is a global paints and coatings company that also produces specialty

Amount of Corn Starch Solubilized 30 min - 200x

Cornstarch with alpha amalyse and enzyme accelerant

Cornstarch with alpha amalyse

See the Difference Microscopic images of corn starch with alpha-amylase enzyme, on the left, compared to corn starch with alpha-amylase enzyme and an enzyme accelerant show the increased starch conversion.

SOURCE: AKZONOBEL-EKA CHEMICALS; PHOTOS: KENDRA MAXWELL

chemicals. With a focus on sustainibility, the company became interested in the secondgeneration fuel ethanol industry due to its

knowledge of the chemistry of cellulosic materials. “[That’s] now being refocused into the corn ethanol initiative,” Haynes says.

september 2011 | Ethanol Producer Magazine | 51

yield

SOURCE: AKZONOBEL-EKA CHEMICALS

During early testing, the company found that its enzyme accelerant increased yield or reduced conversion time for cellulosic etha-

nol, and soon discovered that it worked for corn ethanol too. “Development work has been under way for a couple of years and the product can now be provided in commercial quantities,” he says. “The product is currently not being offered to the industry, but we intend to build a partnership agreement with a business that can deliver the most customer benefits out of the technology.”

A third company, Arisdyne Systems Inc., announced during FEW that the National Corn-to-Ethanol Research Center had agreed to license and support Arisdyne’s Controlled Flow Cavitation system. It will be offered as an adjunct test feature of NCERC’s pilot-scale test facility on

52 | Ethanol Producer Magazine | september 2011

the campus of Southern Illinois University Edwardsville.

Tests of Arisdyne’s patented methods and devices were conducted at NCERC in 2009, demonstrating yield increases of 2 to 3 percent with low flow rate of 5 gallons per minute. Since then, more than five fullscale tests have been initiated at plants using corn, milo or a mix of both with flow rates of 600 to 1,800 gallons per minute, the company says. The commercial-scale tests of the cavitation system have shown yield improvements of 3 to 5 percent. “Arisdyne is extremely pleased that NCERC provided opportunities to advance ethanol’s position as a clean, alternative energy,” says Peter Reimers, president and CEO of Arisdyne.

“We are most grateful to the many industry participants and to NCERC for the support they have provided in helping to verify the effectiveness of our technology in the laboratory and at full commercial scale. Further research involving the CFC system is expect-

PHOTO: ARISDYNE SYSTEMS INC.

yield

Wringing out More Ethanol A Controlled Flow Cavitation system from Arisdyne Systems Inc. will be installed at the National Corn-to-Ethanol Research Center, located at University Park on the campus of Southern Illinois University, Edwardsville.

ed to help the ethanol industry secure better margins, reduce energy consumption per gallon of fuel produced, and provide a pathway to hybrid production of ethanol from grain and other related fiber materials.”

The technology reduces energy consumption, results in higher nutrition distillers grains and offers other related savings, Arisdyne says. With this and other process enhancement NCERC’s pilot plant can now produce more ethanol with the same amount of feedstock. “It’s small, it’s simple, it’s durable,” says John Caupert, managing director of NCERC. “That is what this industry needs. We are working on solutions that convert current starch-based ethanol plants into ‘Generation 1.5’ ethanol plants that convert not only starch but also cellulosic feedstock.”

Author: Holly Jessen Associate Editor of Ethanol Producer Magazine (701) 738-4946 hjessen@bbiinternational.com

september 2011 | Ethanol Producer Magazine | 53

blends

54 | Ethanol Producer Magazine | september 2011

blends

Seeking the

Blending Sweet Spot E15 is getting most of the attention, but is it the best way to expand ethanolâ&#x20AC;&#x2122;s market share?

By Kris Bevill

For years, in coffee shops and grain elevators across the upper Midwest, independent thinkers have voiced their opinions on the benefits of midlevel ethanol blends. Tales of fueling the old Buick, or otherwise unapproved vehicle, with E20 or E30 without experiencing any of the dire consequences threatened by auto manufacturers are not hard to come by, although getting anyone to report the results of their own private fuel test on the record are not so easy. The nonconformists are often corn farmers eager to use as much ethanol as they can and curious to see what will happen if they bump up the blends. They blend it themselves by partly filling the tank with E85 and finishing it off with E10. Or, when available, they use a blender pump. These types of do-it-yourself experiments are certainly not recommended by the ethanol industry nor by the automakers, who say unapproved fuel use will violate warranty agreements. But the fact is, people do it anyway.

september 2011 | Ethanol Producer Magazine | 55

Drivers of flex-fuel vehicles (FFVs), which are approved for midlevel blends, also often report that they experience fewer miles lost when using E30 as compared to E85.

Sometimes they say E30 gives them as many miles per gallon as regular unleaded, and it often costs a few cents per gallon less than unleaded. The evidence suggests that E30 may be the optimal blend for vehicles, and it presents an interesting case for improved testing of midlevel blends to determine just how high the ethanol-to-gasoline ratio can be in the nation’s vehicles.

In late July, E15 was on the verge of finally being able to enter the fuel market after an exhaustive two years of testing and debate. When Growth Energy filed the initial E15 waiver in 2009, the group claimed that increasing the allowable blend rate for standard vehicles was necessary in order to prevent the ethanol industry from hitting the blend wall—the point at which the market is saturated with as much ethanol as can be legally blended into the fuel supply. The U.S. EPA partially consented, approving the use of E15 for model year 2001 and newer vehicles. Certainly, allowing E15 to be used in so many of the nation’s vehicles is a plus, but is it the best way to expand ethanol usage?

Some ethanol proponents believe that rather than bump up the base fuel to include more ethanol, efforts should be focused instead on expanding the availability and capabilities of midlevel blends in order to really utilize the fuel and push out that dreaded blend wall.

Bob Kozak, cofounder of the nonprofit biofuels educational group Advanced

‘But there’s no blend wall for E85. If we had the infrastructure out there and we had it priced correctly, we could sell 3, 4, 5 billion gallons of E85 to the existing flexible-fuel vehicles.’

—Phil Lampert

Biofuels USA, says E15 is only a short-term solution to the blend wall problem. If the industry were to focus on a higher blend such as E30 as an add-on fuel or performance fuel, leaving E10 as the nation’s base fuel, the nation’s fleet would have time to grow into the midlevel blend as consumer interest also expands. “We aren’t saying that everyone should use it, but let’s start having cars that can use it, so eventually E30 does become the base fuel once you have a fleet turnover,” he says. “The ethanol industry needs to start thinking of itself as a fuel industry rather than as an additive industry. Ethanol should start calling the shots rather than just reacting to the oil industry.”

For now, any discussion surrounding the use of midlevel blends must be More Power The 1.6-liter EcoBoost is found in six Ford cars and is proving focused on FFVs. Several a popular mix of economy and power. automakers are introducing advanced engines to the market that utilize midlevel blends via a com- optimizing engines for midlevel blends. “Our bination of optimized intake/exhaust valve testing shows there is a significant value to timing, direct fuel injection, turbo charging still calling for flex-fuel vehicles, still wanting and computer controls. This combination al- them to be E85 capable, but also looking at lows the engine to utilize the higher octane the value of E30 as something the OEMs of ethanol to produce increased power, ef- [original equipment manufacturers] could ficiency and comparable mileage to regular plan for,” says Steve Vander Griend, head unleaded, Kozak says. He believes a low-risk of ICM Inc.’s research and development of way to introduce these engines, such as Ford ethanol engines. ICM is leading the research Motor Co.’s EcoBoost engine or the Chevy effort in Detroit, which is focused on testEcotec engine, is to install them in high- ing the actual fuel, rather than the specific performance vehicles. This would limit the engines it is used in. “Instead of limiting us manufacturer’s liability while still creating a to one set point and kind of eliminating the small but growing market for midlevel etha- cooling effect, this testing is to look at the nol blends. “Once gearheads like the fuel, it’s performance of ethanol and its limitations,” easier to spread it out throughout the whole he says. “What do various blends do to pervehicle fleet,” he says. formance, efficiency? The whole goal here is: Current testing in Detroit could be used How do we get more competitive on a volto prove that it will be worth automakers’ ume basis?” and the ethanol industry’s time to focus on Vander Griend and others say ethanol

56 | Ethanol Producer Magazine | september 2011

PHOTO: FORD MOTOR CO.

blends

blends

Minnesota E30 and E85 Pricing Calculations with and without VEETC Actual Price of E85 in Minnesota With VEETC

Actual Price of E30 in Minnesota With VEETC

Average cost of E85 in 2010

$2.23

Average cost of E30 in 2010

$2.57

Average cost of 87 Octane in 2010

$2.75

Average cost of 87 Octane in 2010

$2.75

Average Savings per gallon

$0.52

Average Savings per gallon

$0.18

Percent savings vs. gasoline

(18.91)

Percent savings vs. gasoline

(6.55)

Anticipated Price of E85 in Minnesota Without VEETC

Anticipated Price of E30 in Minnesota Without VEETC

Average cost of E85 absent VEETC $2.23 + $0.38

$2.61

Average cost of E30 absent VEETC $2.57 + $0.14

$2.71

Average cost of 87 Octane in 2010

$2.75

Average cost of 87 Octane in 2010

$2.75

Average Savings per gallon

$0.14

Average Savings per gallon

$0.04

Percent savings vs. gasoline

(5.09)

Percent savings vs. gasoline

(1.45)

All data based on materials provided by the Minnesota Department of Commerce, Office of Energy Security; www.energy.mn.gov

testing conducted by the U.S. EPA and U.S. DOE does not accurately display ethanol’s benefits because the agencies often use indolene, a form of standardized gasoline, as the blend fuel rather than the conventional gasoline available to consumers. “It is virtually impossible to identify fuel ethanol testing protocols in which ethanol is simply added to gasoline; in government study after government study the base gasoline makeup is changed when tests are performed with ethanol,” Vander Griend recently stated. “It is time for the domestic ethanol industry to better understand the value of ethanol, learn how it is tested, and then offer solutions that deliver the most benefits. Ethanol offers much more value than it is traditionally given credit for, as far as improving efficiency and reducing emissions. However, current policy and regulatory challenges have hidden a significant part of what ethanol has to offer.”

ICM is participating in the Detroit testing because it wants to better understand the qualities of ethanol, Vander Griend says. Ethanol’s high octane level has been a limiting factor in most previous testing because the limits of the engine are reached before the octane is fully utilized. This is a particularly poignant issue with regard to E85, which is well-known to have more horsepower than regular unleaded, but as yet has been unable to achieve the same ef-

ficiency rates. This could likely be due to the fact that engines are simply not able to fully utilize the fuel.

Current engines are engineered to operate on low-octane fuels. Typical unleaded fuel measures at about 87 octane while, by comparison, a fuel comprised of 98 percent ethanol, has octane levels ranging from the upper 90s to low 100s. Because gasoline has dominated the transportation fuels sector since automakers began mass producing vehicles, engines have been optimized for lowoctane fuels. In order to experience the true benefits of ethanol, engines need to be optimized for increased fuel compression. This would result in improved mileage and greater efficiency, experts say, and would benefit E85 as well as midlevel blends. “If we could get the manufacturers to put additional software in the computers to be able to run on, let’s say E30 as well as E10, they could change the timing in the computer program and get the same mileage as you get on gasoline,” Kozak says.

Vander Griend says there is likely a small cost increase for auto manufacturers to make these modifications, but if the industry can guarantee a waiting market for those engines, manufacturers can make it happen. Therefore, the strategy to expand blender pump availability simply has to work if large numbers of the U.S. drivers can ever be expected to use E30 or another midlevel blend.

But in the complicated world of ethanol, even the strategy to expand blender pumps could unintentionally jeopardize the future of midlevel blends. Phil Lampert, an ethanol consultant who has spent more than a decade focusing on E85 expansion, says the Senate agreement to remove the Volumetric Ethanol Excise Tax Credit could result in the demise of E85 and blender pumps. Under the current 45-cent VEETC, E85 can be sold at a 15 to 20 percent discount to regular unleaded gasoline, which compensates for the loss of mileage experienced when using the fuel. Without that credit, retailers will not be able to sell E85 at a reduced price and motorists will be forced to pay the same price for a fuel that gets fewer miles per gallon.

“If we’re not able to price E85 correctly,

‘The ethanol industry needs to start thinking of itself as a fuel industry rather than as an additive industry. Ethanol should start calling the shots rather than just reacting to the oil industry.’

—Bob Kozak

september 2011 | Ethanol Producer Magazine | 57

blends

very few people are going to be willing to take a loss of mileage for the same price,” he says. “We’re fearful that if the price is higher or the same, and people are losing mileage, they’ll buy it one time and won’t be back.” This drop off in demand could have devastating effects on retail ethanol infrastructure. Lampert predicts that less than 25 percent of the approximately 2,400 existing E85 pumps will still be operating six months after VEETC is eliminated. And if E85 pumps are closing, why would any retailer consider adding a new E85 pump or invest in the installation of blender pumps?

Yes, the compromise to repeal VEETC includes incentives to alleviate the financial commitment for blender pump installation, but expanding ethanol availability is only one part of increasing consumption.

“It’s not just build it and they will come. It’s build it and price it correctly and they will come,” he says. If it’s not priced right, it won’t sell. And if it doesn’t sell, retailers are certainly not going to be swayed to install

more pumps simply because they can do it at a discount.

Lampert admits that E85 is still a very small portion of the overall ethanol industry. Approximately 120 million gallons of E85 are expected to be sold this year—less than 1 percent of overall ethanol sales. “But there’s no blend wall for E85,” he adds. “If we had the infrastructure out there and we had it priced correctly, we could sell 3, 4, 5 billion gallons of E85 to the existing flexible-fuel vehicles.” In his conversations with retailers, Lampert says he’s not convinced that many will offer E15 when they are finally able to. And without E15, the next option to increase ethanol’s market share is through midlevel and higher blends for FFVs. “I think we’ve got to refocus our effort to accommodate E30 and E85,” he says.

One way to correct the loss of tax incentives from VEETC could be to modify another existing section of the tax code that allows for a 50-cent-per-gallon credit

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for alternative fuels, Lampert says. That credit applies to such fuels as propane and hydrogen but not E85, which is currently classified as a gasoline additive, not as an alternative fuel. But Lampert and a group of E85 retailers are working to change that and to extend the credit, which is currently set to expire at the end of this year.

Clearly, the path toward any type of expanded ethanol usage is not possible without auto manufacturers. It could take up to two decades to optimize the nation’s entire fleet to use midlevel ethanol blends, but many midlevel proponents believe that long-term commitment is necessary in order to sustainably build out the ethanol market. “The ethanol industry has to look to the long term and not rely on quick fixes such as E15,” Kozak says. “The industry will have to have patience to stick with a long-term plan even if the results are slow at first. The oil industry used to compete with whale oil. It didn’t really take off until internal combustion engines came out.

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blends

There was nothing magical about how it became a leader.”

“If we can develop a solid infrastructure and establish a blender pump network, within three to five years, we could potentially anticipate the pricing between regular and premium fuels to be cut in half through the availability of midlevel ethanol blends,” Vander Griend stated. “This can offer the auto industry the framework to increase compression ratio and in turn, enable the auto industry to manufacture more turbocharged vehicles. Consumer education is paramount to this initiative. Consumers who understand octane does indeed matter because it improves mileage, provides savings at the pump, and mitigates adverse health effects, are consumers who will choose ethanol.”

On the Highway

In 2010, the state of South Dakota embarked on a yearlong study to compare the cost effectiveness of various ethanol blends in state flex-fuel vehicles. The test population consisted of 86 model year 2009 flex-fuel capable Chevy Impalas with 3.5-liter, V6 engines. Half of the vehicles were fueled with E10 or regular unleaded for the entire year, while the other half was fueled with E85 for the first six months and E30 for the latter half of the year. A total of about 94,000 gallons of fuel was used for a total of approximately 2.2 million miles traveled. On average, the control group achieved 26.2 miles per gallon (mpg) in the spring and 27.2 mpg in the fall. The E85 test group achieved 18.2 mpg while the E30 group achieved 21.9 mpg. The average cost per gallon of fuel came to about $2.50 per gallon for the control group, $2.15 per gallon for E85 and $2.45 per gallon for E30, equaling a savings of about two cents per gallon for E10 compared to the higher ethanol blends.

Mike Mueller, public information officer for South Dakota’s Bureau of Administration, says that while the test concluded that E10 is the most cost effective option for the state’s fleet, the study results were rather narrow considering the state’s aging fleet and the uncontrollable conditions of the test. “It certainly wasn’t a lab test by Author: Kris Bevill any means,” he says. “We couldn’t control for those variables such as the geography Associate Editor, Ethanol Producer Magazine (701) 540-6846 or driving conditions and driving habits. And especially for the E30 group, drivers kbevill@bbiinternational.com needed to fuel up at certain points and E30 may not have been available so they may something else.”

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september 2011 | Ethanol Producer Magazine | 59

Q&A

Getting

Better

60 | Ethanol Producer Magazine | september 2011

Number of Projects

Q&A

25

The first DOE conditional loan guarantee awarded for a cellulosic ethanol project

20 15 10 5 0

?

Jonathan Silver, head of the U.S. DOE’s Loan Programs Office, discusses the future of biofuels funding and what lies ahead for DOE loan guarantee programs.

By Kris Bevill

2005 2006

2007 2008 2009 2010 2011

In July, the U.S. DOE finally awarded a conditional commitment for a loan guarantee to a cellulosic ethanol project, giving Poet LLC the chance for a $105 million guarantee for its Project Liberty.

The announcement was a long time coming for Poet, which, along with other cellulosic biofuel developers, has made it no secret that commercialization of their technologies will be nearly impossible without federal financial support. EPM sat down recently with the head of the DOE’s Loan Programs Office to discuss the loan guarantee program’s slow start and whether Poet’s advancement represents a breakthrough for other biofuel loan guarantee applicants to follow.

september 2011 | Ethanol Producer Magazine | 61

Q&A

Since its inception in 2005, the DOE’s loan guarantee program has gained a reputation for its lack of approved projects. How have you addressed this problem since you took over as executive director in November 2009?

Q:

Q:

Earlier this year, the loan guarantee program was in danger of having its funding cut by Congress. What is the current status for this program?

A: The FY2011 Continuing Resolution provided $170 million in appropriations for the 1703 loan guarantee program to support energy efficiency and renewable energy projects. This is the first time that the loan program has had funds to pay the credit subsidy costs associated with guarantees under the 1703 program. This will enable us to support a small number of projects that we would have been unable to support otherwise. The president’s FY2012 budget requests $200 million in additional funding for the 1703 program.

Q:

About how many projects can be expected to be approved in 2012?

A: The DOE anticipates that the president’s FY2012 budget request of $200 million will support $1.5 billion to $2 billion in loan guarantees. Depending on the size of the projects supported, this could equate to one to five projects. In addition, the DOE retains $1.5 billion of authority under 1703 to provide loan guarantees on a “self-pay” credit subsidy basis where the applicant, rather than the government, pays the credit subsidy cost associated with the loan. We expect to issue some loan guarantees on that basis as well.

Q:

The 1705 program is set to expire at the end of September. Do you expect to issue more biofuels project awards before the program expires?

A: There are a number of biofuels projects that remain active in our pipeline, and we expect to issue additional conditional commitments to biofuels projects in the future. We also have the ability to support such projects under the 1703 program, which does not have an expiration date.

PHOTO: POET LLC

A: The old perception is not the new reality. When the Obama administration took office in January 2009, the DOE loan program had not issued a single loan guarantee in its three-plus years of existence. Since March 2009, the Loan Programs Office has issued 42 conditional commitments for loans and loan guarantees totaling over $40 billion with total project costs of $63 billion. These projects are expected to create or save more than 66,000 direct jobs and tens of thousands of indirect jobs across the U.S. The unprecedented pace of the past few months—including the issuance of 12 conditional commitments in June alone— is the result of the many improvements we made to the loan programs. For example, we hired dozens of energy finance professionals, increasing our staff from 15 people in 2009 to approximately 175 federal employees and supporting contractors today. We reorganized them into domain-specific teams

to capitalize on-staff expertise. We launched an award-winning, online application portal, which reduced evaluation time by more than 65 percent, while improving the overall user experience. We increased and improved communication with applicants and launched a new website to increase transparency into our program and process. By any objective measure, the loan programs have become efficient and effective programs.

On the Move Poet LLC is the first biofuels project to receive a conditional commitment for a loan guarantee from the U.S. DOE. The company conducted its first commercial harvest of corn cobs last fall in preparation for a 25 MMgy corn cob-to-ethanol facility at Emmetsberg, Iowa, that is expected to undergo construction this year and become operational in 2013.

62 | Ethanol Producer Magazine | september 2011

Q&A

Q:

How does the 1703 program differ from 1705?

A: The 1703 and 1705 programs are often conflated, but they are, in fact, quite different in a number of important ways.

The 1703 program was created as part of the Energy Policy Act of 2005 in order to support the deployment of innovative technologies such as biomass, hydrogen, solar, wind/hydropower, nuclear and advanced fossil energy coal that avoid, reduce or sequester greenhouse gas emissions. Until recently, the 1703 program was a “self-pay” credit subsidy program. However, earlier this year, the program received $170 million in appropriated funds to cover credit subsidy costs for energy efficiency and renewable energy projects.

The Section 1705 program was created as part of the American Recovery and Reinvestment Act of 2009 to jumpstart the country’s clean energy sector by supporting projects that had difficulty securing financing in a tight credit market. Section 1705 projects can support innovative or commercially mature technologies that are being employed in renewable energy systems, electric power transmission systems or leading-edge biofuels projects that create jobs, are located in the U.S., and commence

construction on or before Sept. 30. Under 1705, applicants are not required to pay the credit subsidy costs associated with the loan guarantees they receive. Those costs are paid by the DOE using monies appropriated by Congress (though applicants still must pay application and other fees).

represent a wise and prudent investment of taxpayer funds.

What level of confidence should the DOE’s offer of a conditional commitment for a $105 million loan guarantee to Poet provide to other cellulosic biofuel producers that have pending applications?

A: Poet’s Project Liberty was an attractive project with several innovative features.

It is one of the nation’s first commercialscale cellulosic ethanol plants and will generate more than 200 green jobs in Iowa. Unlike many conventional corn ethanol plants, it will use corncobs, leaves and husks to produce ethanol, rather than using competing feed grains like corn. Project Liberty will use an innovative enzymatic hydrolysis process to convert waste into ethanol, and will produce enough biogas to power both Project Liberty and Poet’s adjacent grain-based ethanol plant. The project will displace more than 13.5 million gallons of gasoline annually and Poet has plans to replicate the project at its 26 other corn ethanol facilities, creating a series of plants with a projected combined

Q:

What qualities did Poet’s project have that made its loan guarantee application successful?

Q:

A: Biofuels projects often have characteristics that create financing challenges.

However, such projects can make an important contribution to our clean energy economy and we are committed to supporting those projects through the Loan Programs.

Our work on Poet and other biofuels projects has helped find ways to resolve some of the financing issues that occur in this sector.

We continue to work closely with project sponsors to ensure that their applications receive a thorough, fair and expeditious  on the web review, and are given The U.S. DOE’s Loan Programs Office recently overhauled its website to make it every opportunity to more user-friendly and provide comprehensive resources for program applicants: demonstrate that they http://loanprograms.energy.gov/

september 2011 | Ethanol Producer Magazine | 63

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payment” for each loan guaranteed. With more time to develop and mature, we expect that some of these projects will be ready for our program in the near future.

IMMEDIATE DELIVERY

What qualities do wind and solar projects offer that have made them more able to navigate successfully through the program?

Q:

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64 | Ethanol Producer Magazine | september 2011

A: While it is difficult to make comparisons across technologies, it is fair to say that one important difference stems from the fact that wind and solar generation facilities tend to benefit from long-term power purchase agreements. Defined offtake Money Man Since taking on the executive director role at the U.S. DOE’s arrangements such as loan programs office in 2009, Jonathan Silver has led the agency in committing more than $40 billion to 42 clean energy projects. Biofuels these—which many adprojects have been slow to receive commitments, but Silver says the agency vanced biofuels projects is committed to identifying a funding template that will support the industry. lack—help demonstrate annual capacity of 1 billion gallons per year a project’s long-term ability to repay a loan. of cellulosic ethanol. groups have repeatedly The DOE’s offer of a conditional Q : Ethanol called for reform of the DOE commitment for $105 million demonstrates our commitment to biofuels and to- loan guarantee program to make it more wards advancing the commercialization of accessible for cellulosic biofuels projects.

Specific issues of concern include longcellulosic ethanol. term offtake agreements and feedstock What factors have contributed to the agreements. How is the DOE addressing that no other cellulosic bio- these concerns?

Q : fact fuels projects have been awarded A: While the DOE does not require DOE loan guarantees to date? offtake agreements for biofuels projects, A: While we received many applications they are desirable and enhance a project’s for potentially transformative technologies, credit-worthiness. It’s important to keep in many were not ready for commercial-stage mind that the loan programs are only one deployment. In addition, some biomass of several financial incentives that biofuels applications have significant technology, developers can use to advance their projproduction and commodity price risks that ects. DOE invests heavily in energy represent challenges to ensuring that they search and development and demonstration comply with the Title XVII requirement programs for biofuels, including numerous that there be a “reasonable prospect of re- cost-shared grants. Additionally, the DOE, PHOTO: U.S. DOE

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Q&A

the USDA and the U.S. EPA have formed a working group to explore other ways to support the industry.

Q:

It has been mentioned that Congressional reform may be necessary in order to overhaul the DOE loan guarantee program. Given that many observers believe the level of dysfunction in Congress has never been higher, what is the likelihood that reform of the program will occur this session?

A: We are constantly looking for ways to improve the efficiency and effectiveness of the Loan Programs Office and believe the programmatic changes we have made to date have already had a significant impact. Consider that in 2009, we financed eight projects; in 2010, we financed 11; and this year, we’ve supported 23 projects to date. That said, we look forward to working with Congress to the extent there are other improvements that would require legislative changes. Significant future improvements, however, are only relevant if there are adequate funds to invest.

Q:

There also appears to be growing opposition to biofuels, specifically ethanol, in Congress. How heavily do the preferences of Congress affect the DOE’s decision to approve projects for financial support?

A: The DOE reviews each loan guarantee application on its own merits against a common set of criteria outlined in each solicitation and makes a decision based on how well they meet that set of criteria. Biofuels are included in the set of technologies we are looking to support.

Secretary Tom VilQ : Agriculture sack joined Energy Secretary Steven Chu to make the announcement regarding Poet’s DOE loan guarantee offer.

Earlier, President Obama created a biofuels working group bringing the agencies together to coordinate their work. Is this an indication that the collaborative effort is making progress? What else may be ahead?

A: The close working relationship between the various agencies that work on biofuels-related matters is a testament to the administration’s strong support for advanced biofuels, and the shared belief that such fuels have an important role to play in our clean energy future. We believe Poet’s conditional commitment is a positive sign for the industry and we hope to approve even more biofuels projects in the near future.

It has been repeatedly stated that the purpose of federal loan guarantees is not to pick winners. However, it appears that by simply approving projects some technologies and projects are given an advantage over others. How do you respond to the argument that the federal government’s approval process inherently chooses winners?

Q:

A: We do not pick winners and losers.

We pick innovative projects that can be successfully financed. We deliberately and regularly back competing technologies within a single energy sector to ensure there are multiple technologies introduced to the market.

Think of us as a shadow bank. We are active in energy sectors where private capital markets have not yet become meaningfully involved, and when they do, we exit.

As you are aware, cellulosic ethanol producers believe federal loan guarantees are vital to assisting them breach the valley of death. What advice can you offer potential applicants to the program who may be discouraged by the lack of funding awards for biofuels projects to date?

Q:

A: Biofuels have an important role to play in the nation’s future energy mix. We need to work together to ensure that there is a funding template that works for biofuels projects, and adequate future funding to support them.

Author: Kris Bevill Associate Editor, Ethanol Producer Magazine (701) 540-6846 kbevill@bbiinternational.com

feedstock

CONTRIBUTION

Harvesting Both Corn Grain and Stover in Adverse Weather

NDSU quantifies the cost and time involved in corn stover collection

By Cole Gustafson, Thein Maung and David Ripplinger

If cellulosic biofuel development remains on track, several commercial firms will be contracting for corn stover in 2012.

How will farmers balance the field workload of harvesting both feed grains and

corn stover in a year like this one when the crop is late and field days before winter are limited? How much incentive will cellulosic firms have to offer producers to ensure feedstock collection is a priority?

The research team at North Dakota

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 | september 2011

State University in Fargo recently completed a Sun Grant study, sponsored jointly by the USDA and the U.S. DOE, that addresses the impact of limited fall harvest field time, the availability of new corn cob and stover harvesting machines, increased farm sizes, and alternative tillage practices.

A large, mathematical program model of a North Dakota farm with 2,000 acres of 144-bushel-per-acre corn to harvest consid-

feedstock

Table 1: Impact of Combine Speed on Grain/Stover Harvest Cost Corn Grain Harvest Cost Scenario

Corn Stover Harvest Cost

Table 2: Harvest Field Days Total

$ per Acre

From

To

Historical Average (days)

Period 1

Sept. 24

Oct. 7

10.72

50% Speed/Capacity Reduction

57.43

19.36

76.79

Period 2

Oct. 8

Oct. 21

8.62

25% Speed/Capacity Reduction

38.28

12.91

51.19

Period 3

Oct. 22

Nov. 5

10.30

No Speed/Capacity Reduction

28.71

9.68

38.39

Period 4

Nov. 6

Nov. 19

10.25

recorded by USDAâ&#x20AC;&#x2122;s National Agricultural Statistics Service, and shown in Table 2.

Surprisingly, the most difficult harvest time is early to mid-October. Farmers typically harvest soybeans during this time, so any weather delays impact corn harvest, which

immediately follows. Few harvest days exist after November due to the threat of snow.

The base analysis that estimates the profitability and timeliness of harvesting corn grain only is summarized in Table 3.

The main decisions the farmer must make

Tons of Available Corn Stover/Cobs in North Dakota State Total 2.47 million tons

Source: NDSU Department of Agribusiness and Applied Economics

ers 1) corn grain harvest only, 2) simultaneous corn grain and stover, one-pass harvest, and 3) separate corn grain and stover, two-pass harvest options.

Corn grain was harvested with a 275 horsepower (hp), $335,000 combine operating at 4 miles per hour (mph). When stover was collected with a $120,000 machine attached directly behind the combine, its speed was assumed to drop by half to 2 mph based on prior trials at Chippewa Valley Ethanol Cooperative (CVEC) and a GIS study of combine/harvester performance at Iowa State University. Slowing harvest rates has a dramatic impact on machine operating costs, as shown in Table 1.

In the two-pass system, where grain is combined first and stover is collected later with a 130 hp, $120,000 tractor and $100,000 large, square baler, harvest pace is not reduced as the combine operates at full speed of 4 mph while the tractor/baler operates at 5 mph. Total cost per acre is $28.71 for combining, as before, plus $10.76 for the baling operation.

Climatic conditions, and thus corn yields, vary substantially across North Dakota. The study utilizes a corn growth model to estimate the total amount of corn stover available by region based on historical grain yield. It further assumes that only 35 percent of available stover or cobs are collected due to wind, water and soil erosion, carbon maintenance, and other environmental considerations. The state map shows the tons of stover and cobs available for use as cellulosic feedstock in each region.

The number of days that are available each fall for farmers to harvest grain are

Table 3: Corn Grain Harvesting Only Baseline Variable

Average Year

Lowest Year

Highest Year

Net Profit ($)

382,338

329,838

383,049

Corn Grain Sold (bushels)

288,036

248,485

288,571

Period 1

685

608

734

Period 2

489

298

690

Period 3

592

367

576

Corn Acres Harvested

Period 4 Total Acres Harvested Total Harvest Field Days Available

231

450

0

1997

1,723

2,000

37

26

46

september 2011 | Ethanol Producer Magazine | 67

feedstock

Table 4: One-Pass System Simultaneous Corn Grain and Cob Harvesting (a)

No Speed/Capacity Reduction

Variable

Average Year

Lowest Year

Highest Year

Net Profit ($)

401,443

346,320

402,189

Corn Grain Sold (bushels)

288,036

248,485

288,571

699

603

700

Period 1

685

608

734

Period 2

489

298

690

Period 3

592

367

576

Period 4

231

450

0

1997

1,723

2,000

37

26

46

Average Year

Lowest Year

Highest Year

Net Profit ($)

244,208

174,761

303,511

Corn Grain Sold (bushels)

216,576

154,987

269,169

525

376

653

Period 1

427

379

458

Period 2

305

186

430

Period 3

376

229

489

Corn Cob Sold (tons) Corn Grain/Cob Acres Harvested

Total Acres Harvested Total Harvest Field Days Available (b)

50% Speed/Capacity Reduction

Variable

Corn Cob Sold (tons) Corn Grain/Cob Acres Harvested

Period 4 Total Acres Harvested Total Harvest Field Days Available

393

281

488

1501

1075

1865

37

26

46

Table 5: Two-Pass System Separate Corn Grain and Stover Harvesting Variable

Average Year

Lowest Year

Highest Year

Net Profit ($)

345,285

248,631

394,056

Corn Grain Sold (bushels)

254,759

183,541

288,571

620

436

959

Period 1

685

608

734

Period 2

489

298

690

Period 3

592

367

576

1,766

1,273

2,000

Period 2

0.3

0

0

Period 3

11

0

201

Period 4

609

436

758

37

26

46

Corn Stover Sold (tons) Corn Grain Acres Harvested

Total Grain/Stover Acres Harvested Corn Stover Harvested (tons)

Total Harvest Field Days Available

68 | Ethanol Producer Magazine | september 2011

are the number of corn acres to plant and the size of combine to assure that most of the crop is harvested in a timely manner, given limited fall harvest days. By planting 2,000 acres of corn and investing in a 275 hp combine, the farmer nearly completes harvest, given average weather risks. With corn priced at $4 per bushel, he earns $382,338 net profit after all crop production expenses are deducted.

One-Pass Harvesting

Collecting corn cobs with an additional machine attached to the combine presents the farmer with an additional decision. Collecting and selling cobs provides farmers with additional revenue. We assume they receive $55 per ton based on rates paid to producers who participated in corn cob collection projects in the Midwest. The downside of collecting cobs in a one-pass system is the risk of not harvesting all of the corn acres due to combining at reduced speed with limited fall harvest days. Table 4 shows the results of the one-pass system analysis.

With additional corn cob revenue of $55 per ton, net profit increases from $382,338 to $401,443 on average, providing that the addition of the cob collection machine does not slow combine operating speed. If the combine operating speed is reduced by 50 percent, net profits decline substantially to $244,208 and nearly 500 acres of corn remain unharvested.

Thus, the key to farmers collecting corn cobs in the future is the technology of new equipment and the degree to which the machine impacts combine efficiency. Farmers may be willing to tolerate minor reductions in combine efficiency if cellulosic buyers increase payments to defray producers profit shortfalls.

Two-Pass Harvesting

The final stover collection system evaluated is the two-pass system where corn grain is combined first at full efficiency and stover is baled later as a separate operation. Here, the farmer must decide if the value of stover

feedstock

How will farmers balance the field workload of harvesting both feed grains and corn stover in a year like this one when the crop is late and

is difficult to find in rural areas, especially in North Dakota. At present, the state has the lowest unemployment rate in the nation.

Moreover, large tractors and new stover collection equipment is highly sophisticated and any new farm laborer would need extensive training and oversight, again burdening a farmer who is already busy.

Authors: Cole Gustafson, Biofuel Economist, North Dakota State University Cole.gustafson@ndsu.edu Thein Maung Biofuel Researcher, NDSU Thein.maung@ndsu.edu David Ripplinger Biofuel Researcher, NDSU David.ripplinger@ndsu.edu

field days before winter are limited? How much incentive will cellulosic firms have to offer producers to ensure

BIOFUELS CANADA

feedstock collection is a priority? is high enough to warrant investment in a baler, additional tractor operating costs, and corn grain sale losses from having to park the combine to enable stover baling before winter. Results of this method are shown in Table 5.

In this system, with additional corn stover revenue of $45 per ton, net profit is about $345,285, and 234 acres of corn grain are not harvested. Because the farmer has to operate the tractor/baler in addition to the combine, he simply doesn’t have enough time to get everything done. Even doubling the price paid for stover from $45 to $90 per ton only provides additional profit of $27,929 on the 2,000 acres of corn, which only partially offsets the income loss of $135,248 from unharvested acres.

In other analyses, we consider larger and smaller farm sizes and reduced or minimum tillage as a means of defraying the profit losses associated with the additional time required to collect stover. None of the systems considered match the profitability of traditional corn grain combining unless the stover collection machine has zero impact on combining efficiency.

A frequent suggestion is for farmers to hire additional labor to drive the tractor/baler. Additional farm labor, however,

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september 2011 | Ethanol Producer Magazine | 69

water

CONTRIBUTION

Crop water needs + Biorefinery needs + Water conveyance losses + Coproduct credits =

Ethanol water intensity

Water Intensity of Corn-Based Ethanol Needs to Include DDGS Credit Study recalculates water consumption with expanded system boundaries and coproduct credit

By Gouri Shankar Mishra and Sonia Yeh

The growth in biofuels production, specifically corn ethanol, has raised the discussion about the sustainability of biofuels and the impact on natural resources.

Recent studies have estimated the “consumptive water use,” “water embodied,” and “water footprint” of corn-based ethanol in the U.S, with numbers differing by orders of magnitude. Estimates for liters of water used in corn ethanol per vehicle kilometer traveled (VKT) vary from 1.1 to 335 L/VKT for Iowa and from 59 to 214 L/VKT for Nebraska. The

major difference among these studies stems from the debate existing in the water life-cycle analysis (LCA) literature on how to handle the crop evapotranspiration needs met through precipitation, also referred to as green water.

While the use of blue water—water from rivers, canals and aquifers—is consistently included by all studies, we believe that estimation and reporting of green water use is very informative. The explicit reporting of green water requirements acknowledges competing demands for limited freshwater, and also the overall hydrological impacts of growing bio-

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).

70 | Ethanol Producer Magazine | september 2011

A life-cycle analysis of corn ethanol’s energy crops water intensity reports water use as in a given liters of water per vehicle kilometer traveled (L/VKT). Multiply 1 L/VKT by area instead 5.5 to convert to liters of water per liter of alternaof ethanol. The value for L/VKT may be divided by 2.3 to convert to gallons tive uses of per vehicle mile traveled. land such as pastures or other crops. Further, estimates that include total water use are more robust than those focusing on blue water use alone.

Drought in any single year will necessitate application of more irrigation water to compensate for lower precipitation, although total evapotranspiration remains fairly constant.

One important variable is overlooked in most of these studies, however. When the proper credits are incorporated for the coproducts of corn ethanol production, the resulting

water

Our analysis Figure 2 focused on five states—Illinois, Indiana, Iowa, Kansas and Nebraska—which accounted for more than 50 percent of the U.S. corn crop in 2009. In the heart of the Corn Belt, Indiana, Illinois and Iowa, more than 97 percent of the corn was Figure 2 Water consumption intensity of ethanol from corn grain and crop residue and the rain-fed. Nebrasavoided/displaced water use credits assigned to coproducts. ka and Kansas have both rain-fed and irrigated corn crops, ethanol from irrigated corn ranges from 50 L/ with irrigation relying upon center pivot sprin- VKT in Nebraska to around 150 L/VKT in klers. We also considered California where the California. Irrigated corn crops in Nebraska entire corn crop is irrigated. In our study, we and Kansas are largely grown with groundwamodeled dry mill conversion, which accounts ter. The difference in total water requirements for 88 percent of ethanol operating capac- reflects both differences in climatic conditions ity in the U.S. In calculating the water credit as well as corn yields. from the production of distillers grains, we Although we extended the system boundused displacement ratios based on the widely ary to include additional water requirements used GREET model, which accounts for the such as conveyance losses of irrigation water, relative nutrient content and market share of our estimates of corn grain ethanol’s blue and distillers grains and displaced product. We as- green water consumption are lower than those sumed that displaced corn and soybean are of previous studies This is due to the accountgrown in the same region, except for Califor- ing of coproduct credits for water use, which nia where distillers grains displaces soybeans we estimated to be 5 percent and 45 percent shipped in from the Midwest. of the total blue water used to produce ethaFigure 2 summarizes the statewide aver- nol from rain-fed and irrigated corn, respecage consumptive water requirements of etha- tively, and around 50 percent of green water in nol from corn grain, and from both corn grain both cases (shown in Figure 2). It is interesting and cob. Most of the water requirements of to observe that these numbers are higher when ethanol from rain- compared to estimates in the literature of a 20 fed crops are met percent greenhouse gas emissions credit for Figure 1 by precipitation; coproducts. This can be explained by the fact with a small amount that soybean requires significantly less fertilizer of blue water used and pesticides (which emit greenhouse gases) during ethanol con- but similar amounts of water compared to version. The green corn on a per bushel basis. As a result, dried water intensity of distillers grains with solubles generates relasuch ethanol var- tively fewer greenhouse gas emission credits ies from around 70 but more water credits.

L/VKT in Iowa Our methodology to determine the water to 135 L/VKT in intensity of ethanol is the first step towards Kansas. The blue accurately assessing the water use impacts of Figure 1 Water withdrawal and consumptive requirements of ethanol from corn grain water intensity of biofuels. The blue and green water requireand crop residue are calculated by life-cycle stages and by source of water.

water requirements in the LCA are significantly lower than previous estimates. DDGS displaces other animal feeds such as soybean meal and feed corn, and thus precludes the use of water to grow these feed sources.

Our study sought to analyze corn ethanol’s water intensity while explicitly stating the water source—green water versus blue water—and broadening the system boundaries to account for the types of uses, water losses and water inherent in energy use, as well as coproduct credits. We also attempted to estimate the water requirement in the corn cob, as a source of cellulosic ethanol feedstock, separately from the corn grain.

Figure 1 summarizes the various water requirements considered in our study. In addition to evapotranspiration by crops, and process and cooling water requirements at the ethanol conversion facility, there are water losses through evaporation from open irrigation canals or drift losses in sprinkler systems and water embodied in the various energy inputs across the life cycle. There are also nonconsumptive water uses, such as the deep percolation of crop water below the root zone, runoff and seepage losses in irrigation systems.

Such nonconsumptive use of water may not be considered as losses if the spatial boundary used for analysis is extended from the field or farm level to the level of a hydrological basin.

Runoff and seepage from an irrigation system can be a loss at a local level but actually benefit downstream users. As an example, individual irrigation systems in the Nile basin in Eqypt are around 30 percent, while the overall efficiency of the entire Nile system is estimated at 80 percent.

september 2011 | Ethanol Producer Magazine | 71

water

ments of ethanol from corn grown in different regions provide useful information for local water resource management. For example, water use by ethanol can be compared with a regionâ&#x20AC;&#x2122;s total water budget to identify potential water availability constraints and risks.

Our water intensity estimates, however, may not be comparable across states. Regions differ in terms of water availability, scarcity and potential impact on ecosystems as a result of cultivation of bioenergy crops and biofuels production. Our volumetric estimates do not capture such regional differences. In the LCA literature, â&#x20AC;&#x153;characterization factorsâ&#x20AC;? are being developed to convert volumetric water intensities to stress-weighted water intensities that will allow regional comparisons and help reach important policy-related conclusions.

Further, our water intensity estimates may not be aggregated to assess the water use impacts of policies encouraging use of biofuels.

Our estimates are based on â&#x20AC;&#x153;averageâ&#x20AC;? water requirements of corn. Policymakers should consider â&#x20AC;&#x153;marginalâ&#x20AC;? water requirements, which are likely to be higher than average. As suggested in literature, higher corn prices, as a result of ambitious production mandates in the renewable fuel standards, could lead to expansion in corn production to marginal lands with lower yield potentials. They could also result in intensification of corn cultivation in existing lands, which increases yield in the short run but could lower future yields.

Since water intensity is negatively correlated with yield, such expansion and intensification will increase the water intensity of ethanol.

Further, corn expansion is occurring disproportionately on land that requires irrigation, which according to our results has higher average total water (green plus blue water) and blue water consumptive intensities.

Future study could combine the methodology developed in this study with economic models to analyze the marginal impacts of ethanol production on water use. Work is ongoing to use the water intensity estimates of our model to undertake impact analysis and accurately assess the effects of biofuel production on water resources.

Authors: Gouri Shankar Mishra Research Associate Institute of Transportation Studies University of California-Davis (510) 378-3187 gsmishra@ucdavis.edu

72 | Ethanol Producer Magazine | september 2011

Sonia Yeh Associate Researcher Institute of Transportation Studies University of California-Davis

Note: This article is a summation of a paper, â&#x20AC;&#x153;Life Cycle Water Consumption and Withdrawal Requirements of Ethanol from Corn Grain and Residues,â&#x20AC;? which appeared in the journal, Environmental Science & Technology (Volume 45, Issue 10), American Chemical Society. Figures 1 and 2 are reprinted from the article with permission.

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