F2M Market Watch

Despite Early Challenges, Wood-Based Biofuels Poised for Growth in 2011
Posted on January 17, 2011 by Suz-Anne Kinney

When Range Fuels shuttered its Soperton, Ga. plant in January, industry reactions ranged from “I told you so” to “wood-based cellulosic ethanol is dead.” As Dan Chapman of the Atlanta Constitution Journal wrote: “critics—ranging from budget hawks to renewable energy experts to dispirited locals—say that the shutdown is a case of good money thrown at unproven science and lofty promises” (read Dan’s article here).

Range Fuels’ management assured public and private investors—public sources of funding totaled $162 million ($76 from DOE, $80 from USDA and $6 from the state of Ga.) and private sources totaled  $158 million—that the plant would be producing 20 million gallons of cellulosic ethanol by now. Instead, the plant produced methanol. (See Robert Rapier’s R-Squared Energy Blog for an interesting perspective.)

Some reports suggest Range may have produced the 100,000 gallons of ethanol right before closing. This report is unconfirmed, but if it is true, the company met the target that the DOE set for it under the 2011 renewable fuel standard (RFS).  The fate of the plant hangs on the company’s ability to find additional sources of funding from the private sector. According to Chapman, the Department of Energy (DOE) recently wrote, “The final step—catalytic conversion of the gasifier products to ethanol—could not be successfully demonstrated with the time and funding available in this project.” The DOE suspended payments to the company in January.

Where does this leave cellulosic ethanol project developers in 2011? Will cellulosic ethanol ever meet original targets for the RFS? Will the government, stung by Range’s failure and high national debt figures, focus its attention elsewhere? Two factors will be instrumental in answering these questions.

The first of these factors is oil prices. Even before the unseating of Hosni Mubarak in Egypt, experts were predicting higher oil prices. Forest2Market’s Economic Outlook, a monthly publication that provides a 24-month forecast for major economic indicators, predicts that oil prices will remain near or above the $100/barrel level for the next two years (see chart). Others have predicted even higher prices.

The last time oil prices stayed above $90/barrel was from November 2007-September 2008 (hitting a peak above $133/barrel in June and July 2008). During this period, we also saw a spike in public interest in cellulosic ethanol. (Range Fuels was one of the beneficiaries of the spike in oil prices, as it was in the process of raising private capital during this period.) Once oil prices returned to more normal levels, however, interest waned. Because the current period of high prices will likely be extended as a result of unrest in the Middle East, the lower currency exchange rates for the U.S. dollar and other inflationary pressures, the funding environment for cellulosic ethanol projects will likely improve in 2011 and 2012.

(In other financing news, Jim Lane, in his recent article for Biofuels Digest, writes that the USDA has recently revised the requirements of its loan guarantee program for biofuels to include bond market financing.)

The second factor that will influence progress toward commercial scale cellulosic ethanol produced from wood and wood waste is the government’s ability and willingness to fund and expand current loan guarantee programs.

The USDA may have signaled its intention to support cellulosic ethanol with the January announcement of three new loan guarantees totaling $405 million. All of the projects are cellulosic ethanol projects located in the South. Two will use wood as part or all of their feedstock:

  • $250 million went to Coskata to build a plant in Greene County, AL. The plant, when operational, will produce 55 million gallons of ethanol from woody biomass annually. The company currently has  a    facility in Penn. that has demonstrated commercial viability and produces 100 gallons of ethanol from every ton of feedstock.
  • $75 million went to INEOS New Planet Energy for a plant to be built in Vero Beach, Fla. The plant, when operational, will produce 8 million gallons of cellulosic ethanol and 6 MW of electricity from a variety of waste streams, including wood.

In addition to these grants, the USDA is likely to award another $300 million in guarantees for additional biofuels projects in 2011. (BlueFire Renewables, another southern cellulosic ethanol facility that will use wood as part of its feedstock, is high on the list of possible recipients.)

Beyond that, however, the future of government support for cellulosic ethanol is unclear. Because the continuing resolution that has been keeping the government running since December is scheduled to expire March 1, Congress has begun discussing budget proposals. Expect political maneuvering to take center stage.

Many Republicans who were elected in November fall into the deficit hawk category. They will be eager to fulfill their campaign promises to do away with individual member appropriations — a.k.a., “earmarks”  or “pork” — during budget discussions. To many of these members, renewable energy projects fall into the “pork” category, not the “investment in the future” category.

While it is certainly true that the U.S. must make extraordinary efforts to reduce the country's debt, we will be unlikely to grow our GDP in the future (and reduce the size of its debt as a percentage of GDP) without making significant and focused investments in new technologies and ideas, and then producing these new products at home. President Obama’s State of the Union address focused specifically on this issue, and a fact sheet available at the White House website summarizes the President’s commitment to support clean energy technology. This commitment includes an expansion of clean energy research programs and an 85 percent increase in renewable energy investment, all of which would be paid for by ending $4 billion in taxpayer subsidies for fossil fuels. This last proposal is meeting with stiff opposition from Congressional Republicans.

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