February 18, 2011
BY Erin Krueger
As the federal government contemplates cutting the budgets of programs designed to aid in the commercialization of advanced biorefineries, leaders in the advanced biofuel sector are speaking out in support of those programs. Executive leaders representing four cellulosic and advanced biofuel companies participated in a roundtable discussion hosted by the Biotechnology Industry Organization Feb. 17. According to these leaders, biorefinery programs led by the U.S. DOE, USDA and U.S. EPA are integral in developing first-of-the-kind biorefinery projects.
BIO Executive Vice President Brent Erickson kicked off the discussion with an overview of biorefinery assistance programs. In 2007 and 2008, two important measures were passed into law; the Energy Independence and Security Act and the Farm Bill, he said. While EISA is most commonly known as the legislation that established the second phase of the renewable fuels standard (RFS2), the Farm Bill contained an energy title that called for the development of several programs to expedite the development of advanced biorefineries. “[The bills] were intended to work in coordination to support the emergence of the advanced biofuel industry sector,” Erickson said. “This legislation included support for famers to collect new biomass crops to be used as feedstocks, loan guarantees for pioneering companies breaking ground on commercial-scale advanced biorefineries, and support for small producers of advanced biofuels.”
While these programs were established by the Farm Bill in 2008, rules for several of the programs were only finalized in late 2010—two years after they were enacted by Congress said Erickson, noting that several of these programs are only now being implemented.
“The Department of Energy loan guarantee program—until very recently—had completely failed to work for advanced biofuel companies,” Erickson continued. “It was really unfortunate…Even now, only one guarantee under the program has been offered to an advanced biofuel company, while one other is still being negotiated. Meanwhile, the money that Congress authorized for the program has been diverted to other programs, and we think this is problematic.” In fact, a total of $3.5 billion was reallocated for use in the cash-for-clunkers program and a bill that provided state fiscal relief.
“The [U.S. House of Representatives] appropriations committee proposal for the 2011 budget, which would cover the remainder of the fiscal year until October, would actually rescind $1.4 billion of the DOE loan guarantee program,” Erickson said. “The president’s 2012 budget proposal…includes $400 million to support liquid transportation biofuels under the USDA program, compared with $6 billion aimed at renewable electricity. That [proposal] also includes $200 million under the Department of Energy to support $1 billion to $2 billion in loan guarantees for innovative energy efficiency and renewable energy products, while $46 billion is dedicated to loan guarantees for nuclear facilities.”
According to Erickson, BIO recently sent a letter to the administration urging continued and consistent support for the USDA’s bioenergy programs. “We recognize that Congress and the administration must carefully scrutinize programs for cost savings and effectiveness, and we commend their efforts to do that, but the programs for biofuels are only now beginning to be implemented, so their effectiveness cannot be fully assessed yet,” he continued. “We do not know they are providing a sustained and consistent federal support we need to enable our companies to secure private financial backing for these projects, and we think that is very unfortunate…The United States has the potential to lead the world in developing a biobased economy using renewable resources for energy, fuels, chemicals, materials and consumer products, which can really reduce our reliance on foreign oil. It can help us build a stronger economy and reduce our greenhouse gas emissions. But, to do that the federal government must remain a committed partner in this effort.”
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Dan Cummings, vice president of commercial and external affairs in American and Asia at Ineos Bio, spoke to attendees about his company’s cellulosic and renewable energy product in Florida. Once complete, the plant will be capable converting yard, vegetative and household waste into 8 MMgy of cellulosic biofuels and 6 megawatts of renewable electricity.
The project has been given financial support through the DOE’s 932 Biorefinery Assistance Program. “We are also recipients under the USDA Biorefinery Assistance Program for a loan guarantee as well, and we are in the midst of finalizing that,” Cummings said.
While there is a tremendous opportunity in the U.S. to build out an advanced biofuel industry domestically—and export the technology abroad—Cummings said the industry still has a “valley of death” is must cross to move the technologies to commercialization. “Certainly the…assistance that we’ve gotten thus far is welcomed,” he continued. “But more needs to be done. We do need a stable funding source to allow these technologies to move forward.” The fact that lawmakers are looking to pull back on the level of support that has been provided to date gives caution to the private capital markets. According to Cummings, this makes it more difficult to not only raise equity, but also to raise debt to bring large-scale projects online.
Wes Bolson, chief marketing officer and vice president of government affairs at Coskata Inc., echoed many of Cummings concerns. Coskata recently received a loan guarantee to support financing for the construction of a 55 million gallon advanced biofuel facility in Alabama. “Coskata was given an intent to fund what was up to that point, the largest loan guarantee in federal history for [our] 55 million gallon plant,” he said. “This is exactly what we need—the administration, specifically the USDA in this case—taking a leadership role to get the first facilities built.”
According to Bolson, the time to move proven biorefinery technologies to commercialization has arrived. “The technology isn’t the issue anymore; the cost effectiveness of fuel competing with gasoline isn’t the issue anymore,” he said. We need to make sure those excuses aren’t used. What it is, is simply getting the financing behind early facilities, and reducing the risk for private investors.”
One way this can be done, said Bolson, is to extend the investment tax credit for cellulosic facilities beyond 2012, giving it parity with similar tax credits for wind and solar. “It takes a couple of years to build a facility,” he said. “By the time that facility is up, the tax credits which we have in place [now will] have already expired. We need a production tax credit extension and some investment tax credits that will model what has successfully worked for wind and solar. Right now, if you have a bucket of money, you would preferentially invest that in wind or solar simply because of the investment tax credits.”
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According to Scott Weishaar, vice president of commercial development at Poet LLC, the USDA’s Biomass Crop Assistance Program (BCAP) has been especially helpful in developing Project Liberty, the 25 MMgy project cellulosic ethanol facility Poet is developing in Iowa.
Federal programs that aid in the development of technology ramp-up as well as feedstock procurement are vital to the emerging cellulosic industry, Weishaar said. Regarding the BCAP program, he said that the impact can already be seen in communities near Project Liberty. John Deer has set up a dealership to specifically service local farmers who are participating in BCAP. “It’s also helping to keep some of the young people in rural areas,” he continued.
“Poet has been working for about 5 years to educate farmers and get them comfortable with the idea of biomass harvesting,” Weishaar continued. “The concept of ‘build it and they will come’ makes for a good movie title, but it’s really a poor strategy. Many of the farmers are really watching the early adopters closely and deciding at what point do they commit and become involved in this activity. An operational facility cannon afford to sit empty while you build up the feedstock base. For cellulosic ethanol to happen, we really need to press forward on all fronts simultaneously. Establishing a feedstock supply is a major hurdle to commercialization, and these early adopters in particular need some security and assistance in getting their operations off the ground. BCAP has just begun, and we really need to give it a chance to succeed.”
Christopher Standlee, executive vice president of Abengoa Bioenergy, also participated in the discussion. Abengoa is working to develop a 25 MMgy cellulosic biofuel plant in Kansas.
Abengoa was one of the original recipients of DOE funding in 2007 to develop an advanced biorefinery, and is also pursuing a loan guarantee to support the project. “Right now we are in the final stages of negotiating a loan guarantee with the Department of Energy,” he said, noting that award will be critical to financing the project. “Traditional financing is not available to first-of-a-kind technology developments on a commercial scale,” he said. The only way to get these things off the ground is with programs such as the loan guarantee programs from the DOE and the USDA.”
“Our belief is that congressional opposition to funding these programs is shortsighted, Standlee continued. “It impedes or significant efforts to provide this increasing alternative to imported foreign petroleum and ignores the benefits of rural economic development and general economic benefits of these types of facilities,” he said.