Future Destinations

The U.S. coastal regions and population centers are hot spots for biodiesel project development as more companies look to locate their operations near consumption markets. Armed with their own process technologies, medium-sized production plans and creative models, dozens of new players are populating the Biodiesel Magazine proposed plant landscape.
By By Nicholas Zeman | August 19, 2009
The biodiesel industry has always been tied to politics-whether it's state mandates, federal environmental quotas or even trade protocols-and the connections are very important to projects under development in the United States and Canada. Because of speculation that the Canadian Province of Manitoba might issue a biodiesel blend requirement in 2010, John Falk of Sunwest Biofuels received an inquiry from a major oil company as to whether his company would be able to supply it. "If there's a mandate, there's a demand-but if there's not, there's not," Falk tells Biodiesel Magazine.

Sunwest is looking to build a modular plant about a mile north of Altona, Manitoba, in the rural municipality of Rhineland. Falk has high hopes that the Manitoba mandate will become a reality. Of course, demand is the driving force behind increased supply and more plants, and several regional developments are encouraging new projects.

In the U.S. Northeast region, Massachusetts and Pennsylvania are seeing increased activity because of requirements to use certain levels of renewable fuels in home heating and transportation applications. Despite increased demand coming from a flood of new regional mandates and state production incentives, future biodiesel producers still need funding to build supply-and the credit situation is tight. The big story for new renewable energy projects is the American Recovery and Reinvestment Act of 2009, which is said to have millions of dollars available for such enterprises. "There's a tremendous amount of money supposedly available but it is in no way flowing," a future producer says, adding that there are millions of dollars available through the ARRA-but those dollars are hard to snare. "We've found that the government is much more interested in investing in so-called second generation projects that have the potential for huge returns and the promise of energy independence."
Others say that a company has to spend thousands on attorneys to even get close to any of this money. "The federal process is extremely arduous and from what we've seen, the stimulus money is geared more toward developing and supporting new technologies," says Hardy Sawall, senior vice president of Innovation Fuels Inc., which is looking to build a new refinery at its existing terminal location in Milwaukee. "Biodiesel is an existing, standard technology, but we haven't seen much support for that."

Other would-be producers are also skeptical about applying for stimulus money to get their plants built. "We hear chants of 'stimulus money, stimulus money!' ...the government talks a lot but they do nothing," says Surajiet Khanna of Biofuels Advanced Research and Development LLC. "I'm not real big into grants because we could spend a lot of time and money applying for them and end up with nothing," Khanna said.

"There's not a lot of money out there for technologies that are 'shovel-ready,'" another source said. "It also seems like there is not a lot of money available for small business, which is where most of the employment opportunities in this country come from."

To date, Khanna said BARD has spent $5 million on its biodiesel project, including a down payment on the land and permitting requirements. But, of course, they need more money. "The credit situation is very bad," Khanna said. "So we made the decision to take the company public through a reverse merger." A reverse merger occurs when a private firm sets up a "shell" as a public company then acquires the shell to avoid the usually lengthy and expensive IPO process. "We just need a little boost to get us into the next stage and we're tired of waiting," Khanna said. "We think that people really won't mind spending 10 bucks [worth of shares]."

Although BARD's plan is to build a huge plant, most of these projects are modest in size, ranging between 1 MMgy and 10 MMgy. Most of these are looking at individual and local investment to finance their deals, and are finding it hard to put together several small deals in the $5 million to $10 million range.

Some companies had things going rather well before the market crash in September, but have basically had to start all over again. "We had two sources of funding, one was a private investor and the other was the State of California, but both of those have pulled out mostly because of the economic crisis," says Atul Deshmani of Whole Energy Fuels Corp., a proposed plant looking to build next to a wastewater treatment facility on the Pacific Coast Highway outside of San Francisco.

Feedstock Platforms and Process Technologies
Biodiesel made from virgin oils may not receive the same monetary benefits under the parameters set by the renewable fuels standard, so companies that want to enter the industry are more likely to base their business on feedstock platforms considered to be "fringe" or "futuristic." This means that waste greases and algae are receiving a lot of attention. "What feedstocks we decide to use will depend on the debate surrounding the implementation of RFS2," Sawall says.

Life-cycle analysis of biodiesel's greenhouse gases (GHG) is a new part of RFS2 Sawall refers to, and under the parameters established by the EPA, biodiesel made from waste greases is among the top performing environmental fuels. In addition, the continuing dilemma for the industry is that it buys its raw materials in the ag-commodities market and sells its product on the petroleum side, so when certain things happen in the markets, the larger plant can't weather the storm. This means that companies planning to build biodiesel plants know that they need "multi-feedstock" processing capabilities.

The term "second generation" is not related only to feedstocks, it's also related to technology, says Kelly King of Pacific Biodiesel Inc., headquartered in Honolulu. "For one, the technology is more sophisticated now because the ASTM standard is stricter, and we are focusing on getting better yields and improving the efficiency of our processing capabilities," she said.

Algae oil has received a lot of attention as a biodiesel feedstock, and several companies tell Biodiesel Magazine that they are planning to use the second generation source in their refining schemes. But in reality, this could be a long way off. "We can't find a single company that wants to sell us algae oil for $500-per-gallon," King says. "For the foreseeable future I think algae oil will have more applications as a food-grade commodity than as a source for fuel production-it's just too expensive and complicated to make."

New Trends
While in the past locating biodiesel projects near virgin oil feedstock sources was a trend, the situation seems to have shifted over time. More plants now locate near transportation hubs and consumption markets, which is also where a lot of waste greases are produced. GenX Fuels has been producing biodiesel at the pilot scale in Allentown, Penn., for nearly a year, and now it's getting ready to convert the Volken Iron Works building in Wilkesburg, Penn., for industrial-scale biodiesel refining. "This is where all of the steam locomotives in the United States were built for years," says Michael Tucker, owner of GenX Fuels. "So we can house several rail cars there, and we're basically within 12 hours of all the major markets on the East Coast."

Innovation Fuels started operating a terminal in Milwaukee and the company plans to add a biodiesel refinery at the site. Obviously, the logistics of building a biodiesel refinery adjacent to a terminal in a city with a port on the Great Lakes should have its advantages, but for now the project is on hold, Sawall says.

BARD is also planning to build a port location in the Keystone Industrial Park outside of Philadelphia. "It's much easier and cheaper to get feedstocks and ship fuel on the water than it is on road and rail, and it will be much easier for us to access international markets," Khanna says.

Historically the biodiesel production landscape has been built around the agricultural stronghold of the U. S. where a majority of oilseeds are produced, and many of the companies that dominate the industry still reside there. They produce hundreds of millions of gallons annually and have little or no debt, a situation difficult for start-ups needing millions of dollars of credit to compete with, just to get their operations built. "We don't need funding just for construction but for operations too," Falk said.

"The large scale plants in the middle of the country have had their difficulties," a future producer says. "So destination plants that utilize a low-cost feedstock will be better able to compete." Several companies Biodiesel Magazine spoke with said that they are negotiating with 100 percent off-take partners, so they were not worried about competing with the big producers. BARD says it has a five-year off-take agreement with one of "the largest biodiesel traders," and has also lined up feedstock suppliers, hedging support and customers for soy oil, hulls and glycerin.

The industry went through a period of frenzy similar to the 'dot-com' crash and it's starting to come back to reality. "It was the whole concept that crashed, because these people weren't trying to do something real," King says. "You can't have an exit strategy as part of your business model. Invest, go public and get out. Some people have had business models that were about spreadsheets and not about making fuel."

King also says, "It's not sustainable to build a 100 MMgy plant and import palm oil from Indonesia, and the industry is starting to figure that out. So I think we are starting to see a return to community-based production."

Government organizations and utilities are giving support, if not hard cash, to biodiesel projects to promote the continued development of the industry. "A California Coastal Commission Permit is one of the hardest permits in the world to get," Deshmani says. "And we got one, because we had to implement the same standard and safety protocols in our plan as the public utility." There are several interesting synergies that can occur at the community scale, Deshmani says. "The waste water treatment plant has a beautiful lab," Deshmani says, adding that Whole Energy will not have to build testing or research facilities to further develop their process.

"We'll use their waste water to wash our biodiesel and then our waste water goes right back to them," Deshmani tells Biodiesel Magazine. "There are two ways to polish biodiesel, either with a wet or dry wash, and a dry wash is more cost effective."

In another trend, traditional petroleum companies are spending money on renewables research, and start-ups vie for their attention. "We got a letter from Exxon saying that they were not pursuing any joint ventures, but then we heard that they're investing $600 million [in Synthetic Genomics Inc.]," Khanna said. "We're much more advanced than the company Exxon is investing in…if you don't have an inside connection you don't get any interest from the big companies."

Nicholas Zeman is an associate editor for Biodiesel Magazine. Reach him at (701) 738-4972 or nzeman@bbiinternational.com.
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