Growing an Industry Counterculture

There is something to be said about a company's overall business plan when it alone justifies how one of the largest investment arrangements in biodiesel history was recently finalized. Imperium Renewables is the name, energy production is its game.
By Ron Kotrba | April 06, 2007
In late 2003, a small biodiesel company named Seattle Biodiesel LLC was founded by John Plaza, a man who just wasn't satisfied with the overall approach most biodiesel producers were taking in establishing their industry nearly four years ago. To the vexation of Plaza and other like-minded individuals, the model at the core of his discontent has since become the most widely reproduced in the industry. "Most renewable fuels production is a branch off of an agricultural company growing or purchasing agricultural commodities already," Plaza says. "We, on the other hand, have no loyalty to any one agricultural commodity, or to any particular crusher. We're not seeking to expand market opportunities for something that's already being grown." In fact, Plaza sees that plan as a fundamental limiting factor for long-term biodiesel industry growth-the world over. "I started this company as an energy company," he says. "We're not connected to the vertical integration of any particular feedstock development like some of those big international ag companies."

Others in the biodiesel business echo his sentiments. One executive, whose job is strategic development for another large-volume biodiesel company, tells Biodiesel Magazine that the community of producers making this renewable fuel must come to a decision. "Those in this industry, need to ask themselves, 'Are we going to be a commodity-driven industry or are we going to be one that focuses on producing clean-burning transportation energy and be feedstock neutral?'" the source says. Those behind Seattle Biodiesel clearly asked themselves this question a long time ago. "Our desire was-and still is-to produce energy and, in doing so care for the environment," Plaza says. He wants to be profitable too, but he says $60-per-barrel crude oil and high soy oil prices can make it hard to compete. Imperium Renewables Inc., which was formed by Plaza and his associates in 2005, now wholly owns the successful Seattle-based plant. This move allowed company leaders to roll out their emergent counterculture business philosophy on a grand scale.

Early Formation
Through negotiations and a general contracting agreement with Sabyr Contractors, the building of Seattle Biodiesel began in 2004. The refinery, modestly sized at 5 MMgy, rails soy oil from the Midwest to the far-off reaches of the Pacific Northwest. "When I started more than three years ago, the state of Washington had more use of biodiesel per capita than any other state in the nation, yet there wasn't an ounce of oilseeds grown in the state," Plaza says. "Washington is always going to be in the position where they either have to import the majority of their feedstock or fuel." Seattle Biodiesel imports its soy oil from Cargill Inc. in Iowa, which makes it a destination plant because it is situated where the market demand is rather than where the feedstock is grown.

In early 2005, the Seattle-based facility was operational. Plaza says the technology developed and now in use at the plant is unlike conventional biodiesel refining; and was developed in-house. "Technologically, nothing out there being used was appropriate for what I wanted," Plaza says. "It was all based on old ideas. Traditional biodiesel production just wasn't for us. We needed a less capital-intense, faster, better, cheaper way-something that would resonate well with the investment community."

Sabyr Contractors entered into an agreement with the progressive leaders of Seattle Biodiesel to develop the company's first base-line technology. "Sabyr Contractors and JH Kelly have been involved with us since early on, and they've been great," Plaza says. After some adjustments and a learning period, Seattle Biodiesel began hiring its own engineering staff. "Now 20 percent of our employees are chemical, mechanical or electrical engineers," he says. The company offered little to no information on its proprietary process technology outside of saying, "Our reaction is different than most." Nevertheless, the company announced March 5 that Seattle Biodiesel had achieved BQ-9000 certification, a status it hopes to reach with all of its production facilities.

In the fall of 2006, Imperium Renewables broke ground on a massive 100 MMgy facility in Grays Harbor, Wash. The plant is nearing completion with an anticipated July 2007 commissioning. The Grays Harbor project is strategically modeled in many ways after Seattle Biodiesel, which essentially performed as a de facto pilot plant for the company's future work.

Resonating Well with Investors
"We have the best strategy in the United States," says Imperium Renewables CEO Martin Tobias, who attributes this strategy to his company's recent successes in attracting serious investment dollars. Fundraising for the Grays Harbor plant began in late 2005, followed by the Series A round financing that successfully closed in 2006. That money is being used to build the Grays Harbor plant for only 63 cents per gallon of construction costs, or $63 million. "Our ability to construct at such a low cost was very interesting to the investment community," Plaza says.

The interest became even more apparent as Imperium Renewables wrapped up its Series B round fundraising in late February. On the heels of announcing that the Grays Harbor plant would start up this July, Imperium Renewables closed a $214 million investment package, $113 million of which was raised in private equity investments. The other $101 million is under loan managed by lead arranger Societe Generale Corporate & Investment Banking. Venture capital firms Nth Power and Technology Partners have each invested in Imperium Renewables during all three funding rounds. The company says the $214 million deal is thought to be the biggest financing package in U.S. biodiesel history.

"It was exciting when we were oversubscribed and we were able to pick our own investors for not only their financial abilities, but also their strategic value," Plaza tells Biodiesel Magazine. Investors interest is in large part attributable to Imperium Renewables' sound business plan. No company would risk such large amounts of investment capital were the subject of that investment not sound, Tobias says. "We raised $240 million, which says we were able to prove to our investors we have a great strategy," he says. "Our technology, our better location strategy, the fact that we're not stuck to U.S. feedstock availability issues, and that we're building our refineries closer to the customer. It's a destination strategy." The $214 million gives Imperium Renewables the ability to build at least three more massive refineries in the United States-and beyond.

Destination: Earth
While Seattle Biodiesel brings in soy oil from the Midwest, the Grays Harbor plant will need considerably more feedstock. About half will continue to be soy oil but the remaining will come from other sources-some local, some international. Along with soy, Imperium Renewables is arranging to import palm oil-not because the company necessarily likes it but because it feels it has to. "Look, this is going to be the largest refinery in the country," Tobias says, speaking of Grays Harbor and its huge demand on waning soy and vegetable oil supplies.

Natural Selection Farms has recently entered into an agreement with Imperium Renewables to supply the Washington-based biodiesel producer with up to 1 MMgy of canola oil as a supplement-albeit a small appendage-to its overall nameplate requirement from the combined production of the Grays Harbor and Seattle facilities. "The issue here is that we have a 100 MMgy refinery, and we have an arrangement with the largest canola producer in Washington state," Tobias tells Biodiesel Magazine. "That's more than just a trade relationship but if we're going to make biodiesel big, we need to have access to worldwide feedstock markets. We'll use some palm. Canadian canola-we'll buy some of that as well. We're willing to buy up all the canola grown in Washington, Oregon and Idaho, too."

While part of Imperium Renewables' strategy as an energy company is not being confined to feedstock markets by being destination oriented, it's also not limiting where on Earth it determines those final product-destination markets to be. The $214 million the company recently arranged in equity and loans will be used to fund production facilities on the island of Oahu, Hawaii, in the northeastern United States and in Argentina. "In Argentina, we've hired an in-country manager, and we've narrowed the location down to three sites," Tobias says. "The site selection in Argentina won't be final until the second quarter of this year." Argentina has a law in place mandating 5 percent biofuels use by 2010, creating a market for companies like Imperium Renewables to satisfy.

Along with its unique and proprietary technology, destination market approach, international plans and feedstock neutrality or "feedstock agnostic," as Plaza says, the logistics strategy implemented by Imperium Renewables was also a big selling point for investors. Tobias says the company owns its own railcars and barges, helping to control the transportation costs of doing business. Its plants' strategic coastal locales so far have only added to these logistical efficiencies.

Together, all of the contributing attributes to Imperium Renewables' overarching business philosophy have convinced those who control the strings of rather large purses in the financial community that this is indeed a sound company in which to invest beaucoup capital. The anticipated success of Imperium Renewables' current and upcoming projects in Washington, Hawaii, New England and Argentina will be used as motivation to corral even more investment in this company, whose outspoken dissociation with vertical integration contributes to a growing industry counterculture-one in which the financial community appears to have faith.

Ron Kotrba is a Biodiesel Magazine staff writer. Reach him at [email protected] or (701) 746-8385.
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